For the first time in twenty years, the United States buys more products from Mexico than from China.
One of the biggest causes of this phenomenon is the trade war between Washington and Beijing, which intensified when then-President Donald Trump increased tariffs on Chinese products. This measure was maintained by the current president, Joe Biden.
This is how in 2023 Mexican exports to the USA increased by 4.6%, while Chinese exports fell by 20% compared to the previous year, according to data from the Census Bureau.
“It’s a drop that’s impressive,” Luis Bernardo Torres, an economist at the Federal Reserve Bank of Dallas, told BBC News Mundo (BBC’s Spanish-language service).
As Mexico is part of the USMCA free trade agreement (which replaced the old NAFTA), along with Canada and the USA, the country is in a privileged position to occupy part of this commercial space that China left behind.
“It’s something positive for Mexico,” says Torres.
The fact that the US buys more products from Mexico has two major effects on the Latin American country: greater economic growth and the creation of better-paying jobs for better-educated workers.
The products that large Mexican companies export to the USA have greater added value, especially in expanding sectors such as the automobile and chemical industries.
‘It could have grown a lot more’
Although Mexico overtook China in 2023, some economists believe that the increase in Mexican exports was not as spectacular as it seems.
“China’s fall was greater than Mexico’s rise,” Gabriela Siller, director of economic analysis at Banco Base, told BBC News Mundo.
“Mexican exports could have increased much more.”
The expert believes that this untapped potential is explained by factors such as the appreciation of the Mexican peso in 2023, the lack of more factories (installed capacity) in Mexican territory and what she calls the “deterioration of governance”.
“There is an increase in public insecurity and uncertainty regarding domestic economic policy”, he maintains.
“If Mexico doesn’t improve, other countries will take advantage of the opportunity [opened by the drop in US trade with China],” argues Siller.
Indirect relationships
A study carried out by researchers from the University of California in San Diego, the World Bank and the International Monetary Fund (IMF) that analyzed data on Chinese exports to the USA between 2017 and 2022, concluded that the level of sales fell, but warns that the trade distance between the two countries is not as deep as it seems.
“The results show that the decoupling is real, but that supply chains remain interconnected with China,” says the analysis presented at a conference on global geoeconomic fragmentation organized in May last year by the IMF.
Chinese companies have found different ways to indirectly avoid tariffs imposed by the US to continue exporting their products to the world’s main economy.
There are Chinese companies that, for example, have opened factories in other countries from which they can export to the US market without having to pay tariffs because, strictly speaking, it is not a Chinese product.
In other cases, there are countries, including Mexico, that buy many of the parts they need to manufacture their products from Chinese suppliers and then assemble the final product in their countries.
In the case of Mexico, the manufacturing of the final product is regulated in the free trade agreement with the USA. For a product to be considered “made in Mexico”, it must have certain percentages of local added value.
This benefits the Mexican economy and prevents the country from becoming a mere transit platform.
But Mexico has competitors who also want to occupy this space that China left open.
Countries like India, Vietnam, Poland or Indonesia also want to take advantage of opportunities in the midst of the commercial and geopolitical conflict between the US and the Asian giant.
What lays ahead?
“Mexico has a great commercial opportunity. I hope it can take advantage of it, but that’s another story”, says Torres.
The main obstacle that economists and businesspeople raise is that Mexico does not yet have the necessary infrastructure to make its export system more efficient.
Mexico does not have ideal conditions — such as roads and ports, access to a reliable electrical grid, water for large-scale production, and security conditions .
In the political arena, the gap between China and the US may continue to grow, regardless of the winner of November’s presidential elections, contested between Biden and Trump.
If Trump wins, analysts consider it likely that tensions with China will rise again.
And if Joe Biden wins, his team is considering further tariff increases on Chinese products such as electric vehicles, certain types of semiconductors and devices for obtaining solar energy.
Distrust between Washington and Beijing is likely to continue damaging bilateral relations, especially after the war in Ukraine.
The White House has insisted that greater trade ties between China and Russia are not conducive to their interests and could pose a threat in an uncertain international scenario.
Mexico, like other countries, could play a “connector” role in the new reorganization of trade flows arising from the rivalry between the United States and China.
The tectonic plates of international trade are shifting and Mexico is trying to find the best place to benefit from these changes.
