How has the ongoing China-US trade dispute benefited Mexico?
After Vietnam, Mexico is the country that has benefited the most from an ongoing China-US trade dispute.
The dueling escalation of punitive tariffs between the United States and China has enabled Mexico to rectify a negative trade balance and to address the economic effects of the coronavirus pandemic from a strengthened position. According to several recent studies, Mexico is the second country, after Vietnam, to benefit the most from the ongoing China-US trade dispute.
Two years after the levying of the first tariffs on China by the US, Mexican exports gained significant market share in that nation. Mexico made sales totaling an approximate additional $4.66 billion per quarter. This firmly guaranteed Mexico’s position as the second-largest US trading partner and increased its ability to address the impact on global trade caused by the coronavirus pandemic and the measures that have been taken to contain it.
Mexico is among the twelve largest economies in the world and is one of the most open. In 2019, its combined imports and exports amounted to 72% of the country’s GDP. Of the world’s 20 largest economies, only Germany and Thailand have higher percentage rates of this measure than Mexico. This is according to the World Bank data.
Mexico, an exporting country
When we think of Mexico as an exporting country, things like avocados and tequila may come to mind for some. But, although it is indeed the prolific exporter of both products, the largest volume of its sales abroad consists of goods such as vehicles, auto parts, electronics, aerospace parts and components, medical devices, and other manufactured items.
As an illustration prior to the China-US trade dispute, Mexico was the source of 19% of all computers imported into the United States. By the last quarter of 2019, this share had grown by six percentage points to 25%. This increase in the sale of Mexican made computers to the US alone accounted for nearly an additional $2 billion for Mexican exports. This figure equals approximately $650 million per month in overseas sales.
“There will be no winners in the China-US trade dispute”
Chinese Trade Minister Zhong Zhang was the source of the above-cited quote in April 2018. He made the statement as soon as US President Donald Trump announced his policy of tariffs on Chinese goods. This started an escalation of trade barriers between the two countries. At the time, the International Monetary Fund anticipated that the trade dispute would cause a 1.6% drop in China’s GDP, an 0.9% reduction in that of the United States, and an 0.8% loss in the world economy’s combined GDP. Those that opposed the measures in the US maintained that the big losers would ultimately be American consumers.
A predictable effect
A study conducted by the United Nations Organization for Trade and Development (UNCTAD) estimated that, before the implementation of tariffs, only 6% of taxed imports from China would be replaced by purchases within the United States itself. Twelve percent would continue to come from China and the remaining 82% would be replaced by imports from other countries. UNCTAD already anticipated that the country that would benefit the most from import substitution in the US would be Mexico (with 5.9%), followed by Vietnam (5%) Australia (4.6%).
A year later, a study by Japan’s Nomura Holdings established Vietnam as the country most benefited by the China-US trade dispute and relegated Mexico to a position of seventh place. The study noted that an explanation for this outcome may include the indirect effect of tariffs on Mexican exports to the United States, many of which use components or raw materials that have their origin in China.
An interesting study by the Center for Globalization of the Kiel Institute for World Trade, with the title “Friends like this: The Impact of the U.S.-China Trade War on Global Value Chains” put concrete figures on the indirect effect of tariffs. One of the co-authors of the study, Holger Gorg, director of the Centre and Professor of International Economics at the University of Kiel, considers Nomura Holding’s conclusions to be correct. Although he qualifies his opinion by saying that “with the important assumption that the only reason to explain changes in exports between the last quarter of 2017 and 2019 has been the China-US trade dispute.”