The NAFTA Partners

Mexico has quietly overtaken every trading partner except China to become America’s second-largest goods deficit — and the single largest source of U.S. goods imports in 2024, surpassing even China. The story unfolded in two phases.

Phase One: NAFTA integration (1994–2015). When NAFTA eliminated tariffs in 1994, the Mexican deficit was −$15 billion. By 1999 it was −$24 billion. By 2008 it had tripled to −$69 billion. The driver was automotive: Detroit’s Big Three discovered they could build the same F-150 transmission in Saltillo for one-fifth the labor cost of Dearborn. Assembly plants, parts factories, and wire harness shops multiplied across Mexico’s northern states. By 2015 the deficit was −$61 billion, but the growth had been measured — roughly $2–3 billion per year.

Phase Two: The nearshoring explosion (2018–2024). Then came China tariffs, and Mexico became the release valve. The deficit accelerated from −$81 billion (2018) to −$116 billion (2020) to −$181 billion (2024). That’s $100 billion in six years — the same increase that took the preceding 18 years to produce. Samsung opened a $500 million appliance factory in Querétaro. Chinese auto supplier companies built 15 new plants in Nuevo León. Tesla chose Monterrey for its next Gigafactory. Mexico isn’t just receiving American offshoring — it’s receiving Chinese and Korean offshoring too, with finished goods shipping tariff-free across the U.S. border under USMCA rules.

Canada tells a completely different story. Where Mexico’s deficit grows relentlessly, Canada’s swings like a commodity pendulum.

The reason is oil. Canada is America’s largest source of imported petroleum — 4 million barrels per day flowing south through pipelines from the Alberta oil sands. When crude was $140/barrel in 2008, the Canadian deficit peaked at −$80 billion. When it crashed to $30 in early 2016, the deficit shrank to just −$16 billion. In 2024, with oil around $75, it was −$69 billion. Plot Canada’s trade balance against crude prices and the correlation is nearly perfect.

The non-energy trade is more balanced. Canada sends vehicles south (Ontario’s auto plants produce millions of cars for the U.S. market), while America sends machinery, electronics, and agricultural products north. Canada is also the largest export market for 36 American states — a fact that makes Canada uniquely difficult to tariff without immediate political blowback in border states like Michigan, Montana, and New York.

The −$69 billion deficit sounds large, but relative to the total trade volume ($789 billion in two-way goods trade), the imbalance is modest — about 8.7%. Compare that to China, where the deficit (−$295 billion) represents 50% of the bilateral trade volume. Canada is fundamentally a balanced partner distorted by the price of oil.

The contrast between the two neighbors could not be sharper. Mexico’s deficit has grown in 22 of the last 25 years, regardless of recessions, oil prices, or who occupies the White House. It is a structural shift driven by wage differentials and manufacturing migration — the kind of trend that policy can accelerate or slow but cannot easily reverse.

Canada’s deficit oscillates with commodity prices and showed no growth trend at all between 2009 and 2020. It is cyclical, not structural. The recent increase to −$69 billion reflects higher oil prices, not a fundamental change in the trade relationship.

Together they account for $250 billion of the goods deficit in 2024 — up from $59 billion in 1999. That’s a fourfold increase, driven almost entirely by Mexico. And the trajectory suggests it will only accelerate as nearshoring intensifies.