Ties
Exploring Mexico's investment and trade relationship with the US.
With Donald Trump’s return to the presidency, a shift in the country’s foreign economic policy is anticipated. Aside from the continued threats of tariffs targeting the Mexican and Canadian governments, we expect our northern neighbors to adopt greater protectionist measures and reduce their dependency on foreign goods, particularly those from China.
Given the country’s massive influence on the global economy, we decided to examine the United States’ key trade and investment partners to provide context on Mexico’s economic relationship with its northern neighbor and the dependence of the U.S. on Mexico as an economic ally.
According to UNCTAD’s World Investment Report, the United States remains the largest source of foreign direct investment (FDI) globally. In 2023, U.S. companies invested over USD $360 billion abroad.
The top investment destinations last year were Singapore, the Netherlands, Bermuda, and Ireland, collectively accounting for over 40% of total FDI outflows. As of 2023, Mexico ranked as the 11th largest recipient of U.S. capital injections, a drop of two positions when compared to 2019.
Despite this decline in ranking, Mexico remains the top investment destination for U.S. businesses in Latin America, capturing 3% of total outflows during 2023.
Since 2010, the United States’ investment position in Mexico has grown at a compound annual growth rate (CAGR) of 4%, a pace consistent with broader market trends. However, in the past five years, investments in Mexico have accelerated compared to earlier periods. According to BEA data, the 5-year CAGR from 2018 to 2023 reached 8.6%, significantly outpacing the 2% growth observed between 2013 and 2018.
When comparing the growth in the investment position versus other countries, we can see Mexico being favored over our Canadian peers. But significantly lagging the pace of investments into Chinese markets.
However, what does the data tell us when we narrow it down to certain key industries such as manufacturing? And how much does the U.S. depend on imports from Mexico across key industries?