The cumulative U.S. deficit in trade, including the USMCA agreement with Mexico and Canada, now surpasses China's trade surplus.
In a surprising turn of events, the United States' trade deficit with Mexico and Canada has surpassed the deficit with China, marking a significant shift in global trade dynamics.
According to data from the U.S. Census Bureau, the combined U.S. trade deficit with Mexico and Canada now stands at $606.48 billion through May 2023, surpassing the deficit with China, which currently stands at $101.96 billion. This development is attributed to several key factors, including tariffs and trade wars, rising imports from Mexico, and changes in China's trade dynamics.
One of the major contributing factors has been the tariffs and trade wars, particularly with Mexico and Canada. In February 2025, the U.S. imposed 25% tariffs on most Canadian imports and 10% tariffs on Canadian energy products, prompting retaliatory tariffs from Canada on U.S. goods. This escalated into a broader trade war involving steel, aluminum, automobiles, and consumer goods, severely disrupting cross-border economic cooperation and supply chains.
Similarly, tariffs on Mexico, particularly in metals and automotive parts, raised U.S. manufacturing costs by up to 15%, causing supply chain disruptions and compelling shifts toward regional sourcing and increased North American integration.
Mexico's trade deficit with the U.S. widened in early 2025, driven by a 5.9% increase in imports, notably in intermediate goods (+10.4%), despite some decline in capital and consumer goods imports. This surge in imports, including machinery and equipment, outpaced export growth to the U.S., further contributing to the U.S. trade deficit with Mexico.
Despite China's large trade surplus globally, its trade surplus with the U.S. narrowed in early 2025 due to significant drops in Chinese exports to the U.S. (-21% YoY) and imports from the U.S. (-13.8%). This reduction in bilateral trade was influenced by tariffs and negotiations to reduce reciprocal tariffs to 10% for 90 days starting May 2025.
The tariff reduction and previous trade restrictions have constrained China-U.S. trade flows, limiting China's trade surplus growth with the U.S. relative to the rising deficits with Mexico and Canada.
The relationship between exports and imports is a key focus in understanding merchandise trade. However, it's important to note that inequality in attention is given to trade in services, such as tourism, education, and the value of restaurant and hotels brands.
President Trump has made significant efforts to address the trade deficit, raising the average U.S. tariff from 2.5% to as high as 27%, according to one study. However, he has indicated he will end the pause on his April 2 "Liberation Day" tariffs and begin instituting tariffs on the rest of the world on July 9, creating an additional challenge for efforts to diminish the U.S. trade deficit.
The U.S. trade deficit is a measure of the American economy's might and the American consumers' appetite for consumption. Taming the U.S. trade deficit is a challenging task, as evidenced by the efforts of multiple U.S. presidents over the past three decades.
U.S. companies and their workers generate significant business once imports reach foreign shores or borders. Mexico is currently the United States' top trade partner, a position it has held for the last two years. The U.S. deficit with Mexico is now 77.91% as large as the U.S. deficit with China, a significant increase from previous years.
The 2025 U.S. trade deficit is projected to exceed the 2022 record of $1.18 trillion. Despite these challenges, understanding the factors contributing to the shift in trade dynamics and addressing them effectively could pave the way for a more balanced trade landscape in the future.
The escalating tariffs and trade wars, particularly with Mexico and Canada, have significantly contributed to the increased U.S. trade deficit with these countries, outpacing the deficit with China. In the finance sector, President Trump's efforts to address the trade deficit, such as raising average U.S. tariff rates and imposing tariffs on various global imports, have created additional challenges. These developments have unfolded within the general-news context of shifting trade dynamics, and their implications for the industry and politics are ongoing.
