Mexico reaps gains from US-China trade war
Emilio Isais of Gonher, a Mexican auto parts company, has Donald Trump to thank for the meetings with US companies that he is looking forward to this week: America’s trade tensions with China could put some valuable business his way.
“Some US companies, big producers, are considering moving production from China to Mexico,” said Mr Isais, executive director of Gonher’s filter plant. “We could have some opportunities there. We don’t manufacture in China — we’re trying to get the extra business.”
His company is just one of the Mexico-based manufacturers that are seizing the chance to increase their exports to the US as the tariff war between Washington and Beijing heats up.
The value of Mexican imports to the US overtook that of those from China in March for the first time and Mexico is gaining a share of the US market as China’s flags. In recent months, Mexico has studiously focused on promoting its trade with North America and on not antagonising its northern neighbour and top trading partner.
It has not succeeded in all areas — the US recently imposed a 17.5 per cent duty on Mexican tomatoes — but its manufacturing industry is benefiting.
“The US hitting China represents an opportunity [for Mexico] without a doubt,” said Ken Smith Ramos, Mexico’s chief negotiator for the USMCA trade pact, which was agreed last year to update the 25-year-old North American Free Trade Agreement and now awaits ratification.
Exporters of engine filters, such as Gonher, are among the biggest winners from the US-China dispute, in which both sides have imposed tariffs of as much as 25 per cent on key exports from the other country. Mexican engine filter companies’ US market share rose 15.8 per cent in March compared with the month earlier, while their Chinese competitors lost 9.3 per cent, according to data analysis by Mexican trade consultancy De la Calle Madrazo Mancera (CMM).
Other beneficiaries include exporters of cash registers, car radios and vehicle air conditioning units. CMM managing director Luis de la Calle, a veteran Mexican trade negotiator, said these were the “unintended consequences” of Mr Trump’s spat with China. “We have noticed some improvement, a small increase in exports,” said Mr Isais. “Our clients have increased some orders.”
Mexico, whose economy has become highly integrated with the US under Nafta, stands to benefit from the US-Sino friction in three ways.
“You can replace China in the US and the US in China — if you look at the numbers for the last three months, that already shows,” said Mr de la Calle.
In addition, he said, Chinese and other Asian companies could also use Mexico as an export platform to reach the US. Even if they do not comply with the rules of origin required to be able to export duty-free under Nafta, Chinese companies exporting out of Mexico would pay significantly lower tariffs than the punitive 25 per cent they would face when exporting from China.
Luis Enrique Zavala, director-general of the National Association of Importers and Exporters, said some companies had approached him to discuss using Mexico in this way.
They include makers of plastic toys, perfume makers, and textiles and electronics companies, which are considering distributing to their US and Latin American markets from Mexico. In some cases this involves “redirecting [business] within the same company”, he said.
Mexico’s national confederation of chambers of commerce, Concanaco-Servytur, has also received inquiries regarding auto parts, electric vehicles, electronics and mobile phone components, its president José Manuel López Campos said.
“They are worried tariffs will continue to rise and are telling suppliers in China to increase exports to Mexico,” said Mr Zavala.
Even though Mr Trump recently settled a separate trade dispute with Mexico and Canada over steel and aluminium and has postponed the threat to levy tariffs on the auto sector, “that threat [on autos] is still there,” he added.
Furthermore, Rogelio Ramírez de la O, an independent economist, said the US Congress “has become more or less unified around the China issue . . . That means that companies that flew to China to invest and, in some instances, to manufacture in China and resell in the US, now have to have a very hard look at the fact this is a state policy now in the US and is going to remain”.
Replacing US exports to China is a trickier prospect but meat exports to Asia are on the rise. Beef sales to Hong Kong rose 40 per cent last year, according to the Mexican Meat Council.
Companies and economists concede it is early days. “I’m not hearing there is a massive move into Mexico yet, but Mexico is the natural recipient,” Mr Ramírez de la O said.
But Mr Isais at Gonher is already taking the longer-term view. “We don’t know if it will end soon,” he said. “But if [Mr] Trump gets re-elected, this could continue.”