China and Mexico – Signs of a New Relationship from Low-Cost Manufacturing Rivals?

Commentary by Doug Donahue

A lot has been written about the trade wars between China and Mexico, including the fact that Mexican labor is now actually lower priced than labor in China. Yet the belief that Mexico and China are entrenched in a never-ending war to become the world’s leading low-cost manufacturing provider at the other’s expense takes a simplified, outdated view of the situation.

A recent Economist article detailed Chinese President Xi Jinping’s June visit to Mexico, among other countries within America’s orbit. Noting that Mexico sells to the US in eight days what it sells to China in a year, there is certainly the opportunity for Mexico to see China’s expanding domestic market in a new way.
President Xi himself even made an offer to increase China’s imports from Mexico. This should reassure many Mexicans, who see the current 10-to-1 trade imbalance in China’s favor as something to remedy. A lot would have to change for that to happen, however. For one, the countries would have to agree on the size of the current trade imbalance. That’s because many Chinese exports to Mexico come through the US, so China doesn’t count them. Also, the Mexican private sector sees the American market as providing far riper conditions for trade than the Chinese.

Finally, Mexico is part of the US-led Trans-Pacific Partnership, that Beijing strongly opposes. These are just some of the obstacles that would have to be overcome should Mexico increase its exports to China. But President Xi’s visit is still a step in the right direction.

Source: The Economist

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