What is the economic relationship between Mexico and the United States?
Mexico and the United States have had a significant economic relationship for nearly two centuries. The two most important traditional components of that relationship have been trade and direct US foreign investment in Mexico. The differences in the size of the two economies and the per capita income of the respective workforces have determined numerous aspects of the relationship. Economists describe this relationship as asymmetrical. Even though Mexico is our third-1 argest trading partner, and the United States is Mexico's most important trading partner, the economic impact of the United States on Mexico is far more important than that of Mexico on the United States. Any significant downturn in the US economy typically has an adverse effect on Mexico's economy, including its exports to its northern neighbor. The severe recession of 2008, with massive global consequences, was far more significant for Mexico than for other Latin American trading partners, indicated by a 20 percent drop in exports to the United States in 2009. By 2014, however, 80 percent of Mexican exports went to the United States, while 49 percent of Mexico's imports were from the United States. In 2015, Mexico purchased 16 percent of US exports.
The historic economic relationship between the two countries, as measured by direct US investment in Mexico, led Mexico to create a series of restrictions on foreign control over the economy after 1920. Those restrictions, for many decades, limited investment in Mexico because no foreigners, including US investors, were permitted to have a controlling interest in Mexican or jointly owned firms. When President Carlos Salinas
(1988-94) decided to pursue a trading block strategy for accelerating Mexican economic growth, he initially approached the European Union, not wanting to increase Mexico's dependence on the United States. In addition to negotiating a commercial treaty with the United States and Canada, the North American Free Trade Agreement (NAFTA), Salinas removed many of the restrictions on foreigners, resulting in greater investments by the United States and other countries. In 2015, Mexico received $28 billion in direct foreign investment, 53 percent of which came solely from the United States. In 2015, it became a signatory of the Trans-Pacific Partnership Agreement (TPPA), another economic trade agreement.
The asymmetrical relationship of the two economies in terms of size and income levels has led to a huge influx of immigrants from Mexico to the United States in search of jobs. Those immigrants, both legal and illegal, sent back $25 billion in 2015 (averaging $21 billion in recent years) to family members in Mexico, exceeding the income from oil revenues and contributing significantly to economic growth, especially in small communities and rural areas. Again, as a consequence of the recession, those remittance figures declined 3.6 percent in 2008 from the previous year, from a high of $26 billion for the first time since the government has kept records, and declined an additional 8 percent in 2009, for a total of only $21.3 billion. However, in 2015, they reached nearly $25 billion, which accounts for approximately 10 percent of immigrants' earnings in the United States. According to the Mexican government, remittances from relatives abroad represent close to 19 percent of total income for urban Mexican households and 27 percent for rural households.
