U.S. Trade Gap With Mexico Widens Amid Weak Peso

By Josh Mitchell Features Dow Jones Newswires

U.S. President Donald Trump's tough talk on trade with Mexico appears to have had an unintended effect: As the value of the peso has been pushed down, America's appetite for Mexican goods has been driven higher, the opposite of Mr. Trump's intentions.

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The U.S. trade deficit in goods with its southern neighbor reached $7 billion in March, the highest since November 2007, just before the recession, the Commerce Department said Thursday. The $28.1 billion in Mexican goods shipped across the border -- everything from cars to avocados -- marked an all-time high.

The trade deficit with Mexico has leapt 14% this year compared with the first quarter of 2016. That is due largely to a drop in the peso, down more than 8% against the dollar this year.

The peso fell after Mr. Trump's election victory in November and tumbled again starting in January. Mr. Trump pledged during his campaign to make Mexico pay for a border wall, and he has repeatedly threatened to revamp or even cancel the North American Free Trade Agreement. The 1994 pact among the U.S., Mexico and Canada lowered tariffs and other barriers on a host of goods.

Revamping the treaty to Mr. Trump's satisfaction could ultimately hurt Mexican exports, roughly 80% of which go to the U.S. But in the near term, the peso's drop has made it cheaper for American firms to buy Mexican goods in dollars.

The rise in the deficit could be temporary. The peso has stabilized in recent weeks. Mr. Trump recently backed off a threat to pull out of Nafta, indicating a more collaborative approach in negotiations on a revamped deal.

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Overall, the U.S. trade gap with other countries has widened this year compared with a year earlier in a sign of a steadier global economy. The U.S. trade deficit in goods and services grew 7.5% in the first quarter compared with the same period in 2016, as exports and imports each climbed about 7%, the Commerce Department said.

Write to Josh Mitchell at joshua.mitchell@wsj.com

(END) Dow Jones Newswires

May 04, 2017 13:26 ET (17:26 GMT)