Trade tailwinds

China lost its position as the largest source of US goods imports to Europe in 2018 but has now also been surpassed by Mexico. Several factors are driving these large shifts in trade. First, US regulations around trade with China continue to become more stringent. Second, companies selling in the US increasingly opt to produce closer to home due to geopolitical tensions and supply chain risks, a phenomenon called near-shoring. Third, production costs in China have risen substantially making other countries such as Mexico and Vietnam more attractive. Although drivers are different, China could follow the path of Japan, which once made up 15% of US goods imports and now accounts for just 5%. Meanwhile, investors might want to have a closer look at Mexico as its economic growth has several trade tailwinds.

Source: US Bureau of Economic Analysis, September 2023.