How has the trade war between China and the US benefited Mexico

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Mexico is the second country, after Vietnam, that has benefited the most from the trade dispute between the United States and China, according to DW

DW.- The tariff escalation between the United States and China has allowed Mexico to balance a structurally deficit trade balance and face the economic effects of the pandemic from a strengthened position.

According to a study by the DW Data Analysis team, Mexico is the second country, after Vietnam, that has benefited the most from the trade dispute between the United States and China.

Two years after the entry into force of the first tariffs, Mexican exports had gained market share in the United States, representing up to an additional 4.66 billion dollars per quarter, consolidating the country as the second trading partner of the North American giant and improving their relative situation to face the impact on world trade of the crisis caused by the coronavirus pandemic and the measures to contain it.

Mexico is among the twelve largest economies in the world and it is one of the most open to the outside world. In 2019, its imports and exports amounted to the equivalent of 72% of the country’s GDP, an index, known as “openness”, which in 2018 had marked its all-time high, touching 76%. Of the twenty largest economies in the world, only Germany and Thailand have an openness index higher than that of Mexico, according to the World Bank.

Mexico, an exporting country

When we think of Mexico as an exporting country, avocados and tequila may come to mind. But, although it is indeed the main exporter of both products, the largest volume of its sales abroad is represented by goods such as vehicles, auto parts, electronics, and manufacturing.

Before the trade dispute between Washington and Beijing, Mexico supplied, for example, 19% of all imported computers in the United States. In the last quarter of 2019, this share had grown six percentage points, to 25%.

Comercio



This increase alone meant that quarter almost two billion additional dollars for Mexican exports, about 650 million per month. Our Data Analysis team has performed this calculation for all products exported to the United States from Mexico and from China.

“There are no winners in a trade war”

This was said by Chinese Commerce Minister Zhong Zhang in April 2018, as soon as US President Donald Trump announced the tariffs that started an escalation of trade barriers between the two countries. But it’s not always like this. In fact, if a country does not expect to gain anything, why would it start a war, commercial or conventional?

The International Monetary Fund predicted that the trade dispute would cause a drop of 1.6% in China’s GDP, 0.9% in the United States, and 0.8% in the world economy. The American opposition believed that the big losers would be American consumers.

Outsourcing
Photo: Angélica Escobar / Forbes México.

“There is no reason for US consumers to pay the tax that goes into effect in China today (…) tariffs can be completely avoided if you buy from a country without tariff or if you buy the same product within the US (the best idea) “, said Trump in a series of tweets in which he added that” China has taken advantage of the United States for many years because they have left them free. “

Indeed, the trade balance between the United States and China has been consistently favorable to the latter. And that is another of the factors that Mexico has benefited from: ceasing to be in Trump’s crosshairs.

Since his electoral campaign four years ago, the one who the US president accused of taking advantage of the United States was Mexico, also with a positive bilateral trade balance that Trump had proposed to balance. Since the confrontation with China, the trade gap with Mexico, which has only grown since then, has disappeared from the US president’s agenda.

A predictable effect

A UNCTAD study estimated before the tariffs came into force that, although it was “the best idea” according to Trump, only 6% of taxed imports from China would be replaced by purchases within the State itself United.

12% would continue to come from China and the remaining 82% would be replaced by imports from other countries. UNCTAD already predicted that the country that would gain the most from import substitution would be Mexico (with 5.9%), followed by Vietnam (5%) and Australia (4.6%).

A year later, a study by the Japanese Nomura ranked Vietnam as the most benefited by the trade dispute between the two largest economies in the world and relegated Mexico to seventh place. Among the explanations may be the indirect effect of tariffs on Mexican exports to the United States, many of which use components or raw materials from China.

An interesting study by the Center for Globalization of the Institute for World Trade in Kiel, with the significant title “Friends like this: The impact of the trade war between the United States and China on global value chains” put figures to this indirect effect of the tariffs.

One of the study’s co-authors, Holger Görg, director of the Center and professor of International Economics at the University of Kiel, considers our conclusions correct. Although he clarifies that “with the important assumption that the only reason to explain the changes in exports between the last quarter of 2017 and that of 2019 is the trade war.”

Effect of the coronavirus pandemic on the “growth engine of Mexico”

As the undersecretary of Foreign Trade of the Government of Mexico, Luz María de la Mora, expressly said in a presentation in May of last year, “foreign trade pulls [pulls] the growth of the Mexican economy.” “On occasions where foreign trade falls (…) the Mexican economy also falls,” he warned, after clearly considering foreign trade as “the engine of growth in Mexico.”

In 2020 (until August), the openness index has fallen to a value of 48% due to the paralysis caused by the coronavirus crisis, especially in the first months of the year. The current pandemic has hit international trade hard. Also to exports from Mexico, which have decreased by 26.59% until August. And to imports, which have fallen by 30.74%.

Only those from China, Hong Kong, Taiwan and other minor Southeast Asian trading partners have increased slightly during the pandemic. But the fact that imports have fallen more than exports has helped Mexico balance a trade balance that had been in the red for decades.

The president of Inegi declared to the Efe agency when presenting the latest monthly data that “although imports of consumer goods rose 8% in August, they are still at levels much lower than those observed before. of the health emergency ”.

However, he saw reasons for optimism: “although Mexico’s trade surplus vis-à-vis the rest of the world, adjusting for seasonality, decreased from 6,776 to 6,497 million dollars from July to August 2020, it remains at historically high levels.”

Source: dw.com, forbes.com.mx

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