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For First Time in Two Decades, U.S. Buys More From Mexico Than China

New data released on Wednesday showed that Mexico outpaced China to become America’s top source of official imports — a significant shift that highlights how increased tensions between Washington and Beijing are altering trade flows.

The United States’ trade deficit with China narrowed last year, with goods imports from the country dropping 20 percent to $427.2 billion, the data shows. American consumers and businesses turned to Mexico, Europe, South Korea, India, Canada and Vietnam for auto parts, shoes, toys and raw materials.

Mexican exports to the United States were roughly the same as last year, at $323.2 billion.

America’s total trade deficit, which consists of exports minus imports, narrowed 18.7 percent to $177.8 billion. Overall U.S. exports to the world increased slightly in 2023 from the previous year, despite a strong dollar and a soft global economy.

U.S. imports fell annually as Americans bought less crude oil and chemicals and fewer consumer goods, including cellphones, clothes, camping gear, toys and furniture.

The recent weakness in imports, and drop-off in trade with China, has partially been a reflection of the pandemic. American consumers stuck at home during the pandemic snapped up Chinese-made laptops, toys, Covid tests, athleisure, furniture and home exercise equipment.

Even as concerns about the coronavirus faded in 2022, the United States continued to import a lot of Chinese products, as bottlenecks at congested U.S. ports finally cleared and businesses restocked their warehouses.

“The world couldn’t get access to enough Chinese goods in ’21, and it gorged on Chinese goods in ’22,” said Brad Setser, an economist and senior fellow at the Council on Foreign Relations. “Everything has been normalizing since then.”

But beyond the unusual swings in annual patterns in the last few years, trade data is beginning to provide compelling evidence that years of heightened tensions have significantly chipped away at America’s trading relationship with China.

In 2023, U.S. quarterly imports from China were at roughly the same level as they were 10 years ago, despite a decade of growth in the American economy and rising U.S. imports from elsewhere in the world.

“We are decoupling, and that’s weighing heavily on trade flows,” Mark Zandi, the chief economist of Moody’s Analytics, said of the United States and China.

Economists say the relative decrease in trade with China is clearly linked to the tariffs imposed by the Trump administration and then maintained by the Biden administration.

Some economists caution that the U.S. reduction in trade with China might not be as sharp as bilateral data shows. That is because like Hisun, the Chinese vehicle producer, some multinationals have shifted portions of their manufacturing out of China and into other countries but continued sourcing some raw materials and parts from China.

In other cases, companies may simply be routing goods that are actually made in China through other countries to avoid U.S. tariffs.

U.S. trade statistics do not record such products as coming from China, even though a significant portion of their value would have been created there.

Ms. Freund, who wrote a recent paper on the subject, said the two countries’ trade relationship was “definitely being attenuated, but not as much as the official statistics suggest.”

Homebuilders group pushing for 30-year mortgages to boost construction in Canada

The Canadian Home Builders' Association says extending the period an additional five years would help with affordability and spur more construction.

The move would bring more first-time homebuyers into the market, in turn encouraging developers to build more homes, association CEO Kevin Lee told a news conference Thursday.

The proposal is one of several recommendations made by the association in a new report that lays out ways policymakers can help the industry build more homes.

Housing expert Mike Moffatt said he likes some of the recommendations made by the group, including setting up an investment tax credit to support productivity growth in the sector.

But offering a longer mortgage risks boosting demand without addressing the core issues behind the shortage, he said.

"I don't think it's particularly harmful. But I also don't think it's particularly helpful either," Moffatt said in an interview.

The Canadian Mortgage and Housing Corp. estimates the country needs to build 5.8 million homes by 2030 to restore housing affordability.

Canada's housing shortage has worsened amid strong population growth, which in turn has put more pressure on governments to tackle the affordability crisis.

Housing Minister Sean Fraser has conceded that Canada won't be able to significantly ramp up home construction without innovation.

The federal government is hoping to boost productivity and speed up construction with modular homebuilding — dwellings that are built in a factory setting and assembled on-site.

In the fall, Fraser said the federal government would launch a catalogue of pre-approved home designs that would speed up the permitting process and incentivize more factory-built homes.

About a quarter of homebuilders are using some form of factory-based construction, but there's still plenty of room to grow the technology, Lee said.

The association wants a refundable tax credit equal to 30 per cent of investment in machinery and equipment, similar to the investment tax credit created for clean technologies.