The deepening of the Mexican trade relationship with China will result in significant economic gains for each country

One of the main promises that president-elect Andre Manuel Lopez Obrador made during the campaign for his country’s highest office was to diversify the breadth and scope of Mexico’s economic partnerships.  In practice, this clearly means that he aims to prioritize a policy of reducing his nation’s trade and investment dependence upon its large northern neighbor, the United States.

In order to achieve this goal, it is clear that the Mexican trade relationship with China will have to be expanded and strengthened. Although it commands the second largest economy in the world, China only accounts for a modest 14.8% share of Mexico’s trade with the rest of the globe at present.  Moves to strengthen the Mexican trade relationship with China would be in line with the Asian country’s trend of becoming more economically engaged in Latin America.  Over the last fifteen years, China has become the main trading partner for Chile, Peru, and Uruguay.  Additionally, it is now the world’s second most prolific trading partner with countries such as Brazil, Argentina, Colombia, Venezuela, Ecuador, and Bolivia.   China is now Mexico’s fourth largest global commercial partner.

Between January and October of 2018, the Mexican trade relationship with China consisted of the shipment of a mere US $6.41 billion worth of Mexican goods to the Asian country.  This represented a small 1.6% of the country’s overseas sales.   Of this amount, nearly thirty-percent of Mexican exports to China consisted of copper ore and copper-related products.   Among the other items exported from Mexico to China are cars, crude oil, automatic gearboxes, and beer.  Given this low number, opportunities to greater strengthen the Mexican trade relationship with China abound.  Because of Mexico’s greater consumption of Chinese products in the first 10 months of 2018, the country’s trade deficit with China reached a total of US $63.2 million.

As regards the movement of capital, the flow of foreign direct investment (FDI) from China to Mexico in 2018 totaled only 871.3 million dollars.  This comprised a small 0.6% of the investment that entered the Latin American country from overseas sources during this period.

Bi-national trade and investment have room to grow

Despite a modest Chinese active participation in the Mexican economy at present, it can be speculated that the Asian nation will be looking to invest more in Mexico in the near and in the mid-term.  Chinese companies now see the benefits of localizing their means of production in Mexico for several reasons.  First of all, the cost of manufacturing goods in Mexico for consumption in the North American market is now markedly less than the cost to manufacture products in and to ship them from China. This means that having production in Mexico will give Chinese companies more direct access to the world’s largest consumer market.  Additionally, localizing production in Mexico will allow Chinese firms to bypass many trade and non-trade barriers that arise from producing goods in China and shipping them overseas.  Given these considerations, it is inevitable that the Mexican trade relationship with China will continue to grow now and in the future.