Relocation of Global Value Chains: The Role of Mexico

The paper documents recent changes in trade flow dynamics between Mexico, the U.S. and China, focusing on the period around 2017-2023. Using product-level bilateral trade data, the paper studies recent trends in the composition of the origin of U.S. imports, notably that a reduction of imports from China has been accompanied by an increase in imports from Mexico and other trading partners in Asia. The paper also documents that while Mexican exports to the U.S. have significantly increased in recent years, Mexico is also importing more from the U.S. and various countries in Asia, consistent with Mexico’s deeper integration into global value chains. Furthermore, the paper presents evidence that FDI flows to Mexico since 2017, predominantly originated from the U.S., have increased more in economic sectors affected by the U.S. tariffs on imports from China, and that they have been mainly directed to regions in the North with well-established manufacturing networks with the U.S.