Determinants of US-Mexico trade under the USMCA

Abstract

The USMCA will impose a restructuring of the North American supply chains to meet the new input content requirements. To evaluate the determinants of the US-Mexico trade under the new agreement, an econometric model is estimated. The estimations indicate that the distance from the US states to the Mexican border and the size of the economies of the states of Mexico are factors that impact trade between the two countries. Tariffs applied under the USMCA have had a minor but positive impact. Foreign direct investment showed positive effects on trade, indicating the existence of value chains between the US and Mexico. The results suggest that polices to encourage trade between the two countries would require the development of transportation infrastructure, as well as the promotion of investment in strategic sectors to further develop regional supply chains.