Will it seize China's export market?, Mexico's Rise in Trade | Global | Exports

Former Mexican President Pofirio Diaz once said, "Poor Mexico, too far from God, too close to the United States.".

At that time, the US economy not only oppressed Mexican domestic industries, but also indirectly led to more and more Mexican people dedicating themselves to the more lucrative drug industry.

However, as time passes, the meaning of "being too close to the United States" quietly changes.

The largest trading partner of the United States

Starting from February this year, Mexico has replaced China as the largest trading partner of the United States.

According to the data released by the U.S. Department of Commerce, from January to May this year, the total amount of goods imported by the United States from Chinese Mainland decreased by 25% year on year, and the proportion fell to a new low since 2019, accounting for only 11.7% in March.

Some products have seen a significant decrease in import value, such as semiconductors, which have almost halved in import value.

The total import volume of the United States from Mexico reached a historic high, accounting for 15.7% in May, with a year-on-year increase of 8.67%.

The factors behind this are complex and intricate.

On the one hand, as a result of the US China trade war since 2018, Mexico has become the biggest winner under the US supply chain's "de Sinicization" strategy.

Firstly, the US Mexico Canada Agreement was signed in 2020, and the Supply Chain Executive Order issued in early 2021 strengthened the bond between the United States and Latin American countries. Subsequently, the Chip Act and Inflation Reduction Act also provided Mexico with a favorable trade environment.

Meanwhile, Mexico's geographical location plays a role.

Under the superposition of multiple unstable factors such as the Russia Ukraine war and the COVID-19, enterprises in more countries have gradually shifted from "offshore outsourcing" to "offshore outsourcing" to reduce the risks of logistics and geopolitics.

Therefore, its proximity to the United States has made Mexico a choice for many American companies.

According to data released by the Mexican Ministry of Economy, without considering the merger of Television Univision and the restructuring of Mexican Airlines, foreign investment in the first quarter of this year increased by 48% year-on-year, with the United States being the largest investment resource.

On the other hand, this is also a natural result of economic development and industrial transfer.

Similar to Southeast Asian countries such as Vietnam, Mexico has a greater advantage in terms of labor quantity and price compared to China in the fifth round of global industrial transfer.

The average age in Mexico is even lower than in Vietnam, and labor costs are much lower than in China.

Difficult to replace China

Does becoming the largest trading nation in the United States mean that Mexico will further squeeze China's share in the global market?

The answer is very clear: it's difficult and the gap is huge.

Firstly, the total amount is incomparable.

Looking at the global market, China has always been the largest exporter of trade.

According to data from the Global Trade Center, in 2022, despite the impact of the pandemic, China's year-on-year growth rate still reached 6.89%, accounting for 14.7% of the world's total exports that year.

Although Mexico is also in a growth trend, with a year-on-year growth rate of 16.92%, it has a significant gap with China, accounting for only 2.4%, and has not even squeezed into the top ten globally, ranking twelfth.

And the gap in export share between China and Mexico is still widening.

Ten years ago, China's total export volume was 5.8 times that of Mexico, but by 2022, this gap has widened to 6.2 times and has not narrowed due to US intervention.

Secondly, there are significant differences in the structure of foreign trade.

Compared to China, Mexico's foreign trade structure is extremely single, and it is not an exaggeration to say that Mexico's exports are limited to North America, which is a specialty supermarket in the United States.

From a data perspective, Mexico's export market has actually been extremely stable in the past decade. The proportion of the United States is almost always above 78%, and with 2% of Canada, North America holds nearly 80% of the export share.

Chinese Mainland, which ranks third in terms of its export share, accounts for less than 2%, only 1.8%.

It can be seen that its export structure has both geographical and singular characteristics.

As mentioned earlier, political factors are the main reason why Mexico has replaced China as the largest trading nation of the United States, and this factor is difficult to generalize to other regions around the world.

According to the latest data from Chinese customs, China's foreign trade structure is highly diverse and does not solely rely on a specific region.

Thirdly, Mexico has a greater dependence on China's exports.

Whether it is imports or exports, trade between China and Mexico has become more frequent.

Compared to ten years ago, in 2022, the total amount of goods imported from Mexico to China increased by 1.94 times, and exports also increased by 1.67 times.

Moreover, Mexico has a greater dependence on China. This is reflected in two aspects:

Firstly, there is a significant trade deficit.

Compared to exports, Mexico is more inclined to import goods from China, resulting in an increasing trade deficit year by year. In 2022, the trade deficit reached a new high, reaching 107 million US dollars.

Secondly, the dependence on specific products has increased.

From the perspective of imported commodity structure, electronic products, industrial equipment, vehicles, and spare parts are the main commodities imported by Mexico from China.

In the past two years, the import volume of these goods has maintained a high growth rate. Among them, vehicles and spare parts are the most typical, with a year-on-year increase of 72% in 2021 and reaching 50% in 2022.

By calculating the Chinese market share in Mexico's corresponding products, it can also be found that "Made in Mexico" cannot be separated from "Made in China".

This is similar to Vietnam.

Affected by factors such as trade wars and labor prices, the processing and assembly process has shifted from China to other countries, and Mexico is one of the recipients of electromechanical products, which is directly reflected in the fluctuating upward trend of dependence.

Therefore, Mexico still has a long way to go to replace China's position in global trade.

Cars, potential challenges

Although it is impossible to replace it, does Mexico really pose no "threat" to China?

There is one industry that is really uncertain, and that is the automotive industry.

It should be noted that in the 2020 US Mexico Canada Agreement, the automotive manufacturing industry was one of the industries identified and restricted. For example, the agreement stipulates that 75% of the components of cars produced in North America must come from the region, in order to increase the requirements for origin.

This has to some extent promoted the development of Mexico's automotive manufacturing industry.

From the data, it is indeed the case.

According to data from the Mexican Association of Automobile Manufacturers, the total output value of Mexico's automobile manufacturing industry reached 31.2 billion US dollars in 2022, accounting for approximately 3.6% of the domestic GDP, and its importance is second only to the food industry.

In the past decade, the GDP of Mexico's automobile manufacturing industry has increased by nearly 30%, and the number of employees has increased from over 490000 in 2007 to nearly one million in 2021, accounting for 1.64% of domestic labor.

According to the International Association of Automobile Manufacturers, in 2022, Mexico has become the seventh largest automobile production country in the world, second only to Germany.

In terms of the proportion of automobile exports, it is not inferior to China, and even in terms of the export scale of light vehicles, it is higher than China.

According to data from the Global Trade Center, in 2022, China's automobile exports accounted for 9.35% of global exports, while Mexico also reached 8.47%, only $14.15 million less than China.

In light vehicles including passenger cars, minivans, and pickup trucks, Mexico's total export volume even exceeds China's, accounting for 6.02% in 2022, while China's is 5.73%.

Moreover, the competition between the two countries in the automotive industry may become more intense in the future, as major brands will also build new electric vehicle factories in Mexico.

On March 1, 2023, automotive giant Tesla announced that it will invest approximately $5 billion to build the "world's largest electric vehicle factory" in Mexico, and stated that the factory will produce approximately 1 million cars annually and provide countless job opportunities.

In the early stages of this heavyweight official announcement, the Mexican economic department stated in January 2023 that General Motors representatives hoped to produce electric vehicles at their factories in Mexico by 2024.

On February 3rd this year, BMW announced an investment of 800 million euros in a Mexican factory to build BMW's first pure electric vehicle factory in the world.

As of 2022, more than 50 automotive brands and models have been put into operation in factories in Mexico, with foreign direct investment in the automotive manufacturing industry reaching $3.824 billion, accounting for 30.1% of the total foreign investment in Mexico's manufacturing industry.

However, Mexico's automobile manufacturing industry's dependence on China is constantly increasing, as components need to be imported from China. Moreover, according to reports, 20% -30% of the cars sold in the Mexican market come from China.

Therefore, it is too early to say "replace". Moreover, for both parties, they are both opponents and important partners. Maintaining good and smooth trade relations is essential for achieving stability and mutual benefit.