Is Mexico the New China? – The Winners of the US-China Trade War
The trade war between the US and China has been affecting the global economy for years, especially because the two economically strongest countries in the world are involved. Investors in both countries are uneasy, as it is still unclear what the future holds. If the conflict continues, many companies, especially suppliers, will be looking for new locations for their production plants. The main candidates for this are countries in the EU, Canada and Mexico, which are likely to be the real winners of this trade dispute.
Especially the large North American countries, such as the US and Canada, could relocate their factories from China to Mexico, as the country is very suitable due to its geographical proximity. The pandemic has already shown many nations the importance of having trading partners in their own region. Many are now rethinking their dependence on the Asian market, as most supply chains worldwide were interrupted when Covid began.
However, the trade war that continues to affect us today is not a result of the pandemic, but was exacerbated by Donald Trump’s politics. During his tenure as the US president, he publicly portrayed China as the US’s greatest enemy. In addition, the price of shipping containers from China to the US has increased fivefold, further complicating trade between the two. The bilateral tariffs imposed between China and the US were supposed to protect national companies, however, it is now proven that they are only effective when restricting trade with a particular country. Moreover, bilateral tariffs only manipulate the global competitiveness of the countries involved, in favor of companies operating in not-involved countries.
Mexico should therefore take advantage of the opportunity that is presenting itself. Many factories based in China supplying the US will now consider moving to Mexico. This is not only due of the close proximity, but also because Mexico is part of the USMCA agreement, which further favors trade with the US. Furthermore, the country should take advantage of the fact that the middle class in Asia is growing and gaining purchasing power. This means that the population can now consume the products that are produced in their own country and not everything is destined for export, which in turn will increase the migration of companies to North America and especially to Mexico. It is expected that in the next two to five years suppliers will move their factories to Mexico and that this development will not be limited to one sector or industry. New export revenues of up to 26 billion USD are expected, as exports could grow by almost 6%, making Mexico gain even more from the trade dispute than the EU (forecast to grow by 0.9%). Mexico is already the ninth largest exporter in the world and China and the US are its largest customers. Mexico is particularly favorable for the US, as products can be transported by sea, air and land, and suppliers and customers are not dependent on a single way of transport. The state of Guanajuato is particularly important as a production location, as it has a large working population of 2.7 million young adults.
The trade war between the US and China thus represents a great opportunity for Mexico, which the country should take advantage of. However, to make this happen, the problems of crime and corruption should be further addressed and partly solved so that the country remains attractive for investors. It should also not be underestimated that the trade war has many negative effects on the global economy, which should not be greater than the benefits for uninvolved countries.
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