Three effects on Mexico of a possible trade war between the US and China
Among the effects of a possible trade war between the US and China are an increase in the cost of some intermediate and consumer goods, as well as opportunities for Mexico to ramp its exports to the Asian economic power.
It is possible that a trade war between the US and China could potentially generate a series of economic ramifications that will be felt by Mexico. Currently, Mexico purchases a combined 63.9% of its imports from these two economic powers. 46.27% of its overseas purchases come from the US, while 17.60% have their origin in China. On the opposite side of the international trade coin, Mexico sends a combined 81.4% of its exports to the two nations. The United States is, by far, the biggest consumer of Mexican products at 79.8%, while China is the buyer of a mere 1.6% worth of items sent overseas by Mexico.
Upon examination of the occurrence of a possible trade war between the US and China, there are three things that may have an effect on Mexico as a result. They are:
- The more expensive import of manufactured goods;
- A greater volume of Chinese products in the Mexican market;
- The creation of more opportunities for Mexico to export goods to China.
Firstly, a possible trade war between the US and China may precipitate higher prices paid for manufactured products from the US and China in Mexico. This could affect both Mexican consumers, as well as companies with production facilities in these countries.
Beginning July 6, the United States will apply a 25% import duty on more than 1,100 Chinese products. The combined value of these goods will be approximately US $50 billion and will be focused on items imported for use in the aerospace industry, in home appliances and robotics, and information technology and industrial machinery.
Because supply chains are now global, taxes on inputs for the aforementioned industries and products can increase the price charged for finished goods. These additional costs can be absorbed by the companies that make them, or by the consumers that purchase them. It should be noted, however, that more than half of Mexican imports from the United States and China are intermediate goods. These items are those that have their final assembly in Mexico.
The second effect of a possible trade war between the US and China is the possibility that the latter nation will ship more of its products to the Mexican market. This would be a result of efforts made by the Chinese to diversify their exports in the face of a probable decline in purchases made by the United States. Chinese companies that would seek a greater participation in the Mexican market would need to improve their competitiveness. This would be the case with finished goods shipping directly from China to Mexico, in particular.
The third effect of a possible trade war between the US and China would be that Mexico could take advantages of trade barriers that have been set up between their two trading partners to increase the value of agricultural products that it ships to the Far East. This would help to strengthen a current trend of more Mexican agricultural sales in China. Mexico’s Secretariat of Agriculture, Livestock and Rural Development recently reported that, in the first five months of 2018, sales of Mexican farm products into the Chinese market had a surge of 54%. This increase in exports is attributable to growing shipments of pork, blueberries and white corn, in particular. These are products that are also shipped to China from the United States. Additionally, Mexico has recently increased its export shipments of dairy products, tobacco, avocado, and tequila.
In conclusion, the possibility of a trade war between the US and China presents Mexico with both challenges and opportunities. The full extent of these will not be fully known until economic policies in the area of trade between the US and China are implemented.