Asia-Pacific, Economy & Trade, Global Governance, Headlines, Latin America & the Caribbean

MEXICO-CHINA: Trade Winds from the East

Emilio Godoy

MEXICO CITY, Apr 14 2010 (IPS) - China has replaced Mexico as the top supplier of goods to the United States, and experts say that a specific trade strategy is needed for this Latin American country to compete successfully with Beijing in the U.S. market, the world’s largest.

“What is lacking is an active trade policy to try to cut down imports of many inessential articles, and a policy to boost national exports,” Arturo Ortiz, of the Institute of Economic Research at the state National Autonomous University of Mexico, told IPS.

Since 2003, China rather than Mexico has been the chief source of U.S. imports, a situation maintained by the artificially low value of China’s currency, the yuan, which drives that country’s exports, according to local and international analysts.

The U.S. Department of Commerce reported Tuesday that China had a trade surplus of 16.5 billion dollars with the United States in February, having sold 23.4 billion dollars’ worth of goods and purchased 6.9 billion dollars’ worth.

Mexico also had a positive trade balance with the United States, of 4.8 billion dollars in February, with exports worth 16.4 billion dollars and imports worth 11.6 billion dollars from its northern neighbour, according to the report.

“Mexico can regard China as a partner, and not necessarily as a competitor,” Chilean economist Osvaldo Rosales, head of the Division of International Trade and Integration at the Economic Commission for Latin America and the Caribbean (ECLAC), told IPS. “There is room to sell any category of goods, but the relationship must be approached with a forward-looking vision, for the medium term.”

Also on Tuesday, ECLAC published its report, “La República Popular de China y América Latina y el Caribe: hacia una relación estratégica” (The People’s Republic of China and Latin America and the Caribbean: Towards a Strategic Relationship), just ahead of Chinese President Hu Jintao’s trip to Brazil, Venezuela and Chile, this Wednesday to Sunday Apr. 18.

Hu visited Mexico in 2005 and Mexican President Felipe Calderón travelled to Beijing in 2008.

The report says that over the present decade, Latin America and the Caribbean have recorded an overall trade deficit with China, mainly due to the increasingly negative trade balances of Mexico and Central America with the Asian giant.

In Mexico and Central America, it adds, China has become one of the main sources of imports, while exports to China have not increased significantly.

But the ECLAC report calls on Mexico and the rest of the region to prepare for an imminent reality: by 2020, China will be the region’s second largest export market, overtaking the European Union and treading on the heels of the United States.

Mexico’s foreign trade strategy has revolved around the North American Free Trade Agreement (NAFTA) between this country, Canada and the United States ever since the treaty came into force in 1994.

NAFTA has boosted Mexican exports to the United States, at the cost of increasing its dependence on its northern neighbour, with which it shares a 3,326-kilometre border.

Mexico prides itself on being the “world champion” of trade agreements, having signed 38, with countries on every continent.

In contrast, China has used its increasing weight as a world power to consolidate and diversify its markets, without turning its back on trade liberalisation programmes. To date it has seven free trade agreements in operation, the most recent one implemented in March with Peru, while four more are being negotiated.

Economically, the two countries are at very different levels. Mexico was hit hard by the global economic crisis that originated in the United States in 2008, while China was only slightly affected.

In 2009, Mexico’s GDP fell by nearly seven percent, while China’s grew by 7.9 percent.

According to official figures in China, since November 2009 its foreign trade has returned to net growth, with a year-on-year increase of 9.8 percent. In November, Chinese imports increased by 27 percent compared to the same month in 2008, while exports fell by 1.2 percent, a sign of economic strength, the authorities emphasised.

The bilateral trade balance is in favour of China, which sold 32.5 billion dollars’ worth of goods to Mexico in 2009, while buying 2.2 billion dollars’ worth, according to Mexico’s National Institute of Statistics, which highlights that China is Mexico’s seventh largest supplier.

Mexico is also seeing U.S. investment fleeing the country and pouring into China, said Ortiz. “China has practically become the United States’ ‘maquiladora’ (labour-intensive factories assembling imported materials for re-export),” he commented.

According to experts, the gains Mexico made in the U.S. market are being lost to China, which joined the World Trade Organisation (WTO) in 2001 and opened its market to foreign products.

Mexico, the second largest economy in Latin America, has failed to take full advantage of its proximity to the largest world market and of the logistical advantages it enjoys for selling its goods across the border.

China, the analysts say, fights back with different competitive advantages: its low labour costs, attractiveness to foreign investors and productive power to manufacture cheap export goods.

“One task (for Mexico) is to use its geographical position to set up joint ventures, particularly productive alliances in business and technology that would encourage more bilateral exchange, and probably more Chinese investment, taking advantage of the benefits of NAFTA,” ECLAC’s Rosales suggested.

Between 2003 and 2008, China invested 1.1 billion dollars in Mexico, in the automotive, manufacturing, electronics and mining sectors, according to ECLAC.

In Rosales’ view, it is essential to agree a regional agenda to do business with China. ECLAC also says the asymmetry between Mexico and China “must be addressed in their respective trade strategies.”