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Aerial view of cargo trucks lining up to cross to the United States near the US-Mexico border (top) at Otay Mesa crossing port in Tijuana, Baja California state, Mexico, on April 2, 2019. Photo: Agence France-Presse

China and Canada fall away as Mexico becomes the US’ biggest trading partner

  • Mexico is benefiting from ongoing US-China trade war, after overtaking Canada and China to become the US’ biggest trading partner in January and February
  • This is despite Donald Trump trying to force through a replacement for the North American Free Trade Agreement

In the trade war with the United States, China’s loss is Mexico’s gain.

China’s bilateral trade with the US weakened in the first quarter of this year after export order front-loading from both countries started to fade. Mexico has taken advantage of the trade tariffs on Chinese goods to become the US’ top trading partner of the US so far this year, according to new data from the US Census Bureau.

This shows that while US President Donald Trump has stood firm on stopping Mexican immigrants on the US’ southern border, he has not been able to stop the flow of Mexican goods, which are partially filling the gap left by Chinese goods affected by the trade dispute.

The news comes despite the fact that Trump has been trying to force a revised deal through Congress to replace the 1994 North American Free Trade Agreement, covering the trilateral trade bloc of Canada, United States, and Mexico.

The US had US$102.5 billion in goods trade with Mexico in the first two months of the year. Photo: Agence France-Presse

The US had US$102.5 billion in goods trade with Mexico in the first two months of the year. In second place was Canada at US$97.5 billion and then China at US$96.7 billion, according to seasonally adjusted data from the US Census Bureau. Mexico had been in third place, behind Canada and China.

China’s General Administration of Customs has said that from January to March, overall trade with the US fell 11 per cent year on year, to 815.8 billion yuan (US$121 billion). The US is now behind the European Union and the Association of Southeast Asian Nations in order of China’s biggest trading partners.

China was still the home to most US imports – US$80 billion – but that was down 11 per cent from January-February a year earlier. By contrast, Mexican exports to the US rose 5 per cent to US$58.7 billion over the same period.

“The idea is near shoring,” said Alicia Garcia Herrero, chief economist of Asia-Pacific at French bank Natixis, referring to the practice of US companies moving manufacturing to a nearby country from a distant one. “This is the way global value chains are going. Of course Mexico is not big enough to move all manufacturing out of China but it will make a dent [in] parts and components [for electronics and cars],” Garcia Herrero said.

Vehicles and vehicle parts, computers, and electrical equipment are the top three categories of goods the US imported from Mexico last year.

In the car industry, the trend of near-shoring, moving manufacturing from China to Mexico to service the US market, has been growing. Photo: Agence France-Presse

It is not just US companies that are near-shoring, some Chinese companies also have moved production to Mexico in recent years to better target the US market. Hisense, a large Chinese electronics manufacturer, planned to expand the number of flat-screen televisions made in its Mexico factory from 2.8 million sets to 6.8 million sets last year, according to 21st Century Business Herald, a Chinese newspaper.

This trend is most apparent in the car industry, said Louis Kuijs, head of Asia at research firm Oxford Economics. However, it is less obviously happening in the electronics sector, where there is a sophisticated division of labour across the Asian supply chain.

“For hi-tech parts in electronics products, Mexico is unlikely to crowd China out of the market,” Kuijs said.

“It’s just that compared to the situation of US-China trade, Mexico is benefiting. It’s not as if a large sector of the supply chain is moving out of China. What’s sure is that US-China trade is not going to grow in the way that it did in the past decade, whereas US and Mexico have a reasonably amicable trade relationship,” Kujis said.

A US trade delegation headed by US trade representative Robert Lighthizer and Treasury Secretary Steven Mnuchin is due to arrive in Beijing on Sunday for the 10th round of trade talks, aimed at resolving the ongoing trade war. This will be followed by another round of negotiations in Washington in May, with the Chinese delegation headed by Vice-Premier Liu He.

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