Will Mexico be able to capitalize on the trade dispute between the US and China?

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The country’s priority is to maintain solid business and economic relations not only with these two nations but with other countries and regions of the world.

Like observers of the Mexico-China relationship, many businessmen and industrialists wonder what the implications are for Mexico as a result of the trade disputes between the United States and the Asian nation.

It is known that internally the US government is facing challenges derived from the efforts of various companies and industries to relax some of the tariffs imposed in this trade fight with China, as well as obtain benefits and advantages in relation to Mexico.

However, when analyzing trade disputes between the two nations and studying recent surveys on the perception of China –especially in the United States– they show unfavorable views of the Asian country; on the one hand, the result of the international commercial struggle; on the other, as a result of the origin of the coronavirus pandemic that has affected the world so much.

Due to the above and many other reasons in the field of strategic geopolitics, the position of the United States and China in relation to each other is viewed with a perspective of greater competitiveness; At this time, the abolition of tariffs on Chinese products is unlikely, at least in the short term, a situation that the government and businessmen of Mexico, as well as some Latin American countries, must use wisely and seek to attract investment outgoing foreign companies from China, as well as generating favorable conditions to increase their exports to the United States and the Asian nation.

In that context, most important studies have shown that consumers in the United States have been paying the price in these trade disputes, which shows that protectionist trade policies – at least at the moment and, in this particular case – Have not achieved the goal: to reduce America’s large and persistent international trade deficits, nor have they achieved the goal of having factories leave China en masse to return to production in the United States in order to escape imposed tariffs.

Recent data shows that while China’s goods imports fell 16 percent in 2019 – and declined again in 2020 by about 3.6 percent – the overall U.S. trade deficit has increased sharply since 2017, posting an atypical decline of 22 percent in 2020 relative to 2019 as a result of the Covid-19 pandemic.

With this outlook, it is estimated that the trend may favor Mexico with the transfer of production from China to other countries. As long as our country improves its local foreign investment attraction factors and can consolidate a strategy to achieve, in the short and medium terms, be the destination of these outgoing investments from China as part of a business strategy known as China + 1, China + 2 or China + 3, which emphasizes relocating at least part of the production outside the Asian nation.

In the case of Mexico and Latin America, the trade dispute between the United States and China not only gives us the opportunity to attract investment, but it also offers the possibility of increasing our exports to the US and China, both in the short and medium terms. A clear example of this is that Mexico strengthened its position as one of the main trading partners of the US, and increased its exports to this nation by 3.5 percent in 2019 compared to the previous year, with a decrease in its imports of 4.7 percent in the same period.

A good Mexico-United States relationship, as well as working in a coordinated manner, will contribute to improving the local conditions for attracting foreign investment in Mexico; in particular, for the export manufacturing industry where advances and announcements of new businesses and projects are seen in the medium and long term.

If to that we add factors such as the geographic location of Mexico, the size of its economy and market, the Treaty between Mexico, the United States, and Canada (TMEC), and the network of international treaties that our country has signed (which provide preferential access to more than 46 nations), its infrastructure and the more than thirty Agreements for the Promotion and Reciprocal Protection of Investments (APPRI) that it has with different nations, make the country the ideal place to produce near the United States, in what is known as nearshoring, the transfer of a commercial operation to a nearby territory from a more distant one.

Undoubtedly, not only companies from the United States, Japan, Korea, and Germany will be able to take advantage of these favorable factors in Mexico to produce and export their products, but it also opens the opportunity for Chinese companies, which according to data from the global network of Chinese desktops from EY ( EY China Overseas Investment Network), Chinese corporations in recent years are managing to position themselves in international markets and compete globally with their counterparts in other countries. However, for many other companies in China, internationalization processes are still in an early stage and they have a long way to go; Therefore, it is likely that, in the coming years, we will see more Chinese companies and factories arriving in Mexico to produce and export to North America, partly as a result of the trade dispute between the United States and the Asian nation, as well as the rearrangement of the Value chains.

In order to capture and capitalize on these great opportunities, it is urgent that Mexico have a clear vision and a policy to attract foreign investment where the conditions and policies necessary to quickly attract investment from manufacturers of materials and value-added processes are created. such as stamping, machining and die-cutting, among others. This in order to create a viable ecosystem and make the country depend less and less on these products or services that come from abroad, particularly from China.

Finally, I agree with several internationalist experts who believe that Mexico should play intelligently and, at the same time, maintain pragmatic and active relations with the US and China, without taking sides. The country’s priority is to maintain solid business and economic relations not only with these two nations but with other countries and regions of the world such as Germany, Japan, Korea, Singapore, and the members of the Pacific Alliance: Colombia, Chile and Peru.

 Asia New Business Development Director & Tax and Legal Services Associate Partner, EY México.

Source: elfinanciero.com.mx

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