Now that the United States is loudly breaking up with Mexico on social, Mexico is suddenly on the prowl for hot rebound trade with other markets. This is how it looks from here anyway, with Mexican officials popping up all over the media saying some country or other is going to be a big new market for Mexican exports. The new U.S. administration’s threats to dismantle the North American Free Trade Agreement (NAFTA) are currently stoking the flames of economic terror in Mexico, but we all know that Mexico’s dependency on the U.S. export market has been the stuff of economists’ nightmares for decades. To put it in perspective, the share of Mexico’s annual exports shipped to the USA has not dropped below 79% since some time before 1993, if it ever has. From 1998 to 2001, the concentration of Mexican exports destined for the U.S. market hovered near a truly bloodcurdling 89%. So it’s not like we didn’t know we were exposed to risk from overdependence on one market, but after 25 years of trade-loving U.S. governments, we became accustomed to living in denial. Continue reading Mexico frantic to diversify export markets for some reason
Mexico’s long-running effort to defend its domestic manufacturing industries against cheap Chinese imports is about to take another hit. The struggle goes back to China’s admission into the World Trade Organization (WTO) in 2001, which Mexico was highly reluctant to accept. In return for Mexico’s vote to admit China, the two countries agreed to extend an existing Mexican program of compensatory import duties on key-sector products from the Asian giant. Focusing largely on textiles, apparel and footwear, the duties ranged from over 100% to over 1,000% depending on the product. The high tariffs helped stave off the inevitable for a while, but the extension was originally agreed to last only six years. As the expiration date neared in 2007, the Mexican government heeded the frantic entreaties of the affected sectors, particularly the Guanajuato footwear industry centered around the city of León, and dived back into negotiations with the Chinese. The result was elimination of the compensatory duties on 749 Harmonized Tariff System (HTS) product classifications, but the extension of the duties on some 200 remaining classifications. The tariff rates on the remaining products have been reduced annually since 2008, but are still substantial, ranging approximately from 65% to 130%. Continue reading Duties on Chinese imports to drop in December
In the run-up to this weekend’s G20 meeting in Huntsville, Ontario, much ink has been spilled regarding the value of the Chinese currency. Economists, pundits and observers of all stripes have taken positions on various sides regarding the question of how much and how fast the yuan (or Renminbi, if you prefer) needs to appreciate against other major currencies. And, of course, how willing Chinese authorities are to allow this to happen.
Hypothetical scenarios projected in some circles of a rapid appreciation of 40% have China’s export competitors salivating. Basic trade theory holds that by hiking the value of the yuan, Chinese exports become more expensive, making competing products made in countries such as Mexico that much more cost competitive. Gaining ground of this type is seen as critical in the hotly disputed U.S. market for goods such as appliances and electronics. Trade data for 2009 suggests that Mexico is already gaining some overall market share from China in the United States, and we have touched on the relative cost competitiveness between Mexico and China in this space before.