Market Volatility And China Tariffs Could Benefit Mexico As Top U.S. Trade Partner

Market Volatility And China Tariffs Could Benefit Mexico As Top U.S. Trade Partner

As the United States-China trade war frightened stock markets on August 5 into their worst day of the year, some analysts said Mexico could find a silver lining in increased trade exports.  

"The commercial problems that China-United States are having can have benefits for Mexico – there are products in which Mexico is competitive and could start selling more to the U.S., meaning more investment and better development for Mexican companies," said Manuel Francisco Valencia Bastida, director of undergraduate studies in international business at Tecnológico de Monterrey in an interview with sinembargo.

Bastida said that while "Trump and China fight," Mexico has become the U.S.'s largest trading partner. 

U.S. Department of Commerce data released August 2 showed that Mexico was the top trading partner for the first half of the year for the United States, followed by Canada. China fell to third, with imports from China dropping by 12 percent, and U.S. exports to China falling 19 percent.

In comparison, Mexico accounted for 15 percent of total trade in goods – imports plus exports – in the first half of 2019, with Canada at 14.9 percent.

President Trump's trade disputes with China and market uncertainty caused the main stock indexes of both the U.S. and Mexico to fall sharply on August 5, with the Dow Jones Industrial Average falling 767.27 points, or 2.9 percent. 

The Mexican Stock Exchange – known as Mexbol – fell 1.73 percent on August 5 to its lowest level in eight months.

While Mexico could benefit from a China-U.S. trade war in the short-term, experts said a prolonged international trade war, as well as President Trump's failure to ratify the United States-Mexico-Canada Agreement (USMCA), could plunge global economies into a recession. 

USMCA represents President Trump's effort to modernize the North American Free Trade Agreement (NAFTA), which has been in place since 1994. The USMCA agreement was signed in November 2018, but still needs to be ratified by the national legislatures of the United States and Canada.

The USMCA has been ratified by Mexico and has support in Canada, but has stalled in the U.S. Congress.

Bryan Riley, director of the National Taxpayers Union Free Trade Initiative, told FreightWaves that getting Congress to ratify the USMCA, and keep the agreement "free of any tariffs" will be the key to keeping trade and the economy moving forward. 

"When President Trump threatened Mexico with tariffs in response to the immigration dispute, the reaction from businesses across the country that would be affected by tariffs was overwhelming," Riley said.

If Congress fails to ratify the USMCA, and President Trump decides to pull the U.S. out of NAFTA, the effect would be "unthinkable," Riley said. 

"Hopefully the Trump Administration knows that from a political standpoint, why would they take any action that would hurt our economy – surely it would send us into a recession if he pulled out of NAFTA," Riley said.

Image Sourced From Pixabay

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