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Mexico is a Beneficiary of The US-China Trade War

Mexico is a Beneficiary of The US-China Trade War

US-China Trade War Benefits Mexico

According to a report that was recently published by the United Nations Conference on Trade and Development (UNCTAD), the US-China trade war could result in notable financial gain for Mexico.  More specifically, the prolongation of the current commercial dispute between the world’s two largest economies could result in Mexico’s shipment of new exports to its North American neighbor in excess of US $26 billion over the course of the present year.  The UNCTAD report also asserts that Canada and European nations will benefit from the US-China trade war, as well.  This is because bilateral trade between the United States and China will diminish and will be replaced by trade that originates in other countries.  According to Pamela Coke-Hamilton, the director of the International Trade Division of UNCTAD, the effect of tariffs between the United States and China will mainly be “distorting.”

Furthermore, the report from the United Nations Conference on Trade and Development concludes that tariffs “do little to help national companies” from both countries and, to the contrary, they end up benefiting exporters from third nations.  According to the UNCTAD, of US $250 billion in Chinese exports subject to US tariffs, approximately eighty-two percent will be diverted to other countries, twelve percent will be retained by Chinese firms, and only a small six percent will be supplied by US companies.  Similarly, of the approximately US $85 billion in US exports that are subject to China’s tariffs, about eighty-five percent will be captured by companies from third-party countries.  It is estimated that US firms will retain less than ten percent, while Chinese firms would only capture five percent.   UNCTAD research indicates that the countries that are expected to reap significant benefits from the US-China trade war are those nations that are more competitive and that have the economic capacity to replace Chinese and American goods.  Mexico is among such countries.

The US-China trade war has resulted in FDI in Mexico

The US-China trade war has already brought tangible benefits to Mexico in the area of foreign direct investment.  Fuling Global Inc. is a Chinese manufacturer of plastic utensils that provides cups and straws to restaurants in the United States.  Fuling’s products are among those items that have been adversely affected by the imposition of tariffs by the Trump administration.  In order to remain competitive in the US, the Chinese manufacturer recently opened a factory in the industrial city of Monterrey, Nuevo Leon, Mexico.  The company now takes full advantage of duty-free export to the United States, competitively priced Mexican wages, and the lower shipping costs that a Mexican location provides.  The company CEO, Gilbert Lee, recently commented that “Mexico is a very logical and advantageous place for us.”  Production at the Fuling Monterrey facility is set to begin this coming July.

Mexican company exports to the US increase due to the commercial dispute

In addition to foreign direct investors from the Far East, Mexican national companies have benefitted from the effects of the US-Mexico trade war.  Mount Pleasant, Texas-based Taskmaster Components is an example of a company that has replaced Chinese imports with products from Mexico.  For almost twenty years, the company has imported wheels and large tires from Asia.  Because of the US-Mexico trade war, Taskmaster has begun to source these items from Mexican suppliers.  Even small businesses in Mexico have benefitted from the trade dispute between the United States and China.  After the US applied a ten percent tariff on Chinese silk thread, Mexican exports of the product jumped from virtually nothing in 2017 to US $1.6 million last year.  Chinese imports of knit and crochet fabrics have fallen by approximately US $3 million dollars, while Mexican exports of these products to the United States grew by almost the exact same amount.

Most notably, the Trump administration’s tariffs have had a significant effect on the global automotive industry supply chain.  An example of how the US-China trade war has affected the market for auto imports into the US is that during the past example of how the US-China trade war has affected the market for auto imports into the US is that during the past year imports of gasoline-powered vehicles from Mexico have risen by seventeen percent for a total value of US $36.2 billion.  This has resulted in the need of some Mexican automotive manufacturers to expand their operations to meet their northern neighbor’s demand.

 

 

 

 

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