United States / Analyst Insights
The Importance of Mexico to Automotive Industries in the US
by Robert Miles Analyst
Aug 28 2018

As the Trump administration announced its new US-Mexico Trade Pact, the focus was squarely on automotive issues. Not only was the core of the pact built on car manufacturing, but President Trump also made explicit mention of US automotive trade with Canada in his announcement.

When international trade is broken down at the industry level, the importance of cars and trucks to the US economy shines through. Automotive parts can be roughly broken down into eight industry codes (33631, 33632, 33633, 33634, 33635, 33636, 33637, 33639) and final assembly is broken down by IBISWorld into 33611a and 33611b (car and automobile manufacturing and SUV and light truck manufacturing). The following charts show just how important these industries are to total industry trade.

export share

import share

 

Charting the relationship between the United States and Mexico helps explain the emphasis put on automotive manufacturing. The value of trade for car and automobile manufacturing (33611a) skews heavily toward imports and stands out among the automotive related industries in terms of total value.

assembly

sector balance

mexico balance

In fact, the United States imports more than it exports to Mexico for all but one industry, automotive metal stamping (33637). However, the trade relationship makes sense when labor costs are accounted for and the relative size of the economies is examined. What stands out beyond the value of trade, however, is just how central Mexico is to US trade for these industries. Both imports to and exports from Mexico take up a large share of trade for almost all the automotive industries in the United States. This signals the dependence of operators at each level in the supply chain for trade in parts and components that generate the final vehicle.

Mexico share

auto DD

When domestic demand is analyzed at the industry level (revenue minus exports plus imports), the relationship between the United States and its North American trading partners becomes even clearer. US production is still the largest share of domestic demand in each industry. However, the different breakdown in each industry suggests how production unfolds and how industry operators come together for final assembly. Notably, their final vehicle assembly is where US operators face the stiffest competition and it is primarily from countries outside of North America. Only 53.4% of domestic demand is garnered by North American producers for the Car and Automobile Manufacturing industry, whereas no other industry in this group has a measure below 75.0%.

The automotive focus of this trade deal supports a rise in the required level of North American parts used in cars sold in the region. While the North American automotive sector is already highly concentrated in the region, the already highly competitive car assembly industry may be forced to change where they buy parts.

Country DD

The relationship with Canada, assuming the Mexican deal goes through, would be the next step in renegotiating the North American Free Trade Agreement (NAFTA). However, the relationship with Canada is starkly different from that with Mexico. The trade balance with Canada is much more closely aligned for automotive industries and the United States has a positive trade balance in several sectors.

While exports of products to Canada are essential to trade in these industries, imports tend to be less essential to satiating domestic demand. The different relationship between levels of manufacturing should result in a completely separate form of negotiations. The stark difference may be indicative of why the deals are being negotiated separately.

Canada balance

US auto Canada