Market share gains in US manufacturing imports have not been linear

Mexico is widely recognized as one of the primary beneficiaries of ongoing US trade tensions with China. Since the end of 2017, it has captured a greater share of US manufacturing imports than any other country asides Vietnam. Mexico has also recently become the largest trade partner to the US, however, market share gains in US manufacturing imports have not been linear, with Mexico lagging some of its competitors in this metric only a year ago.

To gain better insight into these dynamics, we use a split-share methodology to divide changes in market share gains into three different components:

  1. changes in competitiveness (defined as the increase in market share gain in individual import items or categories)
  2. changes in the pattern of US imports
  3. Ìýthe interaction between changes in the prior two components

Share gains weighed down by composition of US import since COVID

We found that Mexico’s failure to generate market share gains in the immediate post-COVID era was largely a reflection of changes in US import patterns drifting from autos. But this is almost certainly not a reflection of a structural change in the pattern of US consumption as much as it reflects supply disruptions to autos on account of COVID. Put differently, Mexico’s market share gains since COVID have been constrained by the fact that autos is the country’s most important manufacturing exports sector, and that this sector, perhaps more than any other, suffered larger supply disruptions on account of the pandemic. As US auto consumption and inventory trends come back to normal, Mexico’s share of US imports has improved, and we expect this to continue by virtue of this normalization.

…but Mexico has gained competitiveness across sectors

Contrary to share gains being weighed down in Mexico, gains in competitiveness by sector indicates that autos have led the way in this category. This means that although the share of US auto imports as a percentage of total manufacturing imports may have been falling on account of COVID, Mexico was capturing a larger share of that shrinking auto portion. In fact, apart from categories such as electrical equipment, appliances, components and primary metals, Mexico has gained competitiveness in every major manufacturing sector since the beginning of the trade tensions with China at the end of 2017.

Mexico’s market gains from competitiveness have increased linearly since 2017 and have been widespread across sectors. Gains from competitiveness were particularly sizeable in autos, computers and electronics, and beverages and tobacco. We think these gains are the most relevant ones in determining Mexico’s success in becoming a primary nearshoring destination of choice. However, we note that while Mexico has made sizeable market gains in important sectors such as finished autos and auto parts and computer equipment, it has yet to show any gains in two critical sub-sectors to the EV and reshoring narratives, namely batteries and semiconductors.

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