Mexico replaced China as America's top trade buddy — and it shows how the global economy is rapidly transforming

• Trade between the US and Mexico reached $263 billion during the first four months of this year.
• That pushed Mexico past China and Canada as the top trade partner since the start of the pandemic.
• China was the top partner for much of the 2010s and again at the start of the pandemic.

Meet America's new, old best friend in the world economy.

According to a new post from Luis Torres of the Federal Reserve Bank of Dallas, Mexico has once again cemented its place as America's top trading partner with $263 billion worth of goods passing between the two countries in the first four months of 2023. Trade with Mexico accounted for 15.4% of all the goods exported and imported by the US, just ahead of America's trade totals with Canada (15.2%) and China (12.0%).

Even as the world moves on from the height of the pandemic, Mexico's ability to take the top spot away from China — which had spent the last two decades integrated itself further into the US economy — is a clear sign how the economic chaos of 2020 will continue to define the world world economy for years to come.

According to the Dallas Fed, the seeds for this shift were sown before the pandemic — with former President Donald Trump's tariffs on some Chinese goods and the signing of the US-Canada-Mexico trade deal, a slight update of the nearly three-decades-old NAFTA deal. But Torres notes that the changes also suggest an accelerated shift towards "nearshoring," a practice in which countries try to bring the supply chains for crucial goods to countries that are close both physically and politically.

"While data on recent nearshoring is thin and evidence of it is largely anecdotal, increased protectionism and related industrial policy are consistent with less global trade, more regional trade, and nearshoring and reshoring (returning production to the home country)," Torres wrote.

Nearshoring increased during the pandemic thanks to the increased cost of shipping products across the Pacific and the consumer demand for faster delivery times — we'll call the latter "The Amazon Prime Effect." Peter S. Goodman of the New York Times also wrote earlier this year that companies like Walmart are increasingly looking closer to home for ways to fill their needs as political tensions between the US and China heat up.

"It's not about deglobalization," Michael Burns, managing partner at Murray Hill Group, an investment firm focused on the supply chain, told Goodman. "It's the next stage of globalization that is focused on regional networks."

In Shannon O'Neil's new book, "The Globalization Myth: Why Regions Matter," she makes the case for the idea of regionalization over globalization and argued that keeping production closer to home would help American workers. In his review of O'Neil's book, Greg Rosalsky of NPR summed up the argument:

"O'Neil writes that the average import from Mexico is '40% US made,' meaning that 40% of the parts that go into the end product are still produced in the US. The average Canadian import, meanwhile, is 25% made in the US. 'As for a product coming in from China? Just 4% of it was made in the USA,' she writes."

Still, in recent months, President Joe Biden has sought to improve the US-China relationship after seeing the fracturing grow in recent years, including the shooting down of a Chinese spy balloon in February. Secretary of State Antony Blinken met with Chinese President Xi Jinping in June, and Treasury Secretary Janet Yellen recently made a 4-day trip to China.

Blinken and Xi pledged to stabilize the relationship between China and the US. Meanwhile, Yellen voiced concerns over "unfair economic practices" but hoped the two sides could work closer and noted, "the world is big enough for both of our countries to thrive."

With pieces in constant motion, especially with China, one thing is clear for now: trade between Mexico and the United States appears to be as strong as ever and should continue to grow.