Mexico and China are quickly establishing one of the largest trade routes in the world. Trade between the two counties shot up by 60 percent compared to last year, making it “probably the strongest growing trade in the world right now,” in the words of European data analytics firm Xeneta.
The huge uptick in Chinese-Mexican trade comes as a result of a slew of U.S. tariffs on imports of Chinese goods. Mexico is an increasingly attractive trade partner for both Beijing and Washington in the face of waning economic cooperation between the U.S. and China and shifting global supply chains.
Suddenly, Mexico has found itself to be a key manufacturing and production linchpin for both of the biggest economies in the world. It surpassed China to become the top exporter to U.S. markets in 2023. Mexico, a middle-income country, pays wages comparative to those in China, and is already part of the world’s largest trading bloc, the United States-Mexico-Canada free trade agreement (USMCA).
Not only has the U.S.-China chill been a boon for Mexico, so too have global “near-shoring” and “friend-shoring” policies that have gained ground in the wake of the supply chain snarls brought on by Covid. Short supply chains are having a moment, and exporting from right over the border, as opposed to the other side of the world, is increasingly attractive for U.S. markets.
Former Mexican ambassador to China José Luis Bernal says that the country’s strengthened trade relationship with China will provide a key catalyst to the green energy transition and emerging clean technology and manufacturing sectors. “The diversified business potential will fuel bilateral trade growth and contribute to the global green transition,” Bernal told the Global Times during the eighth Global Think Tank Summit last week.
Chinese electric vehicle companies are already looking to expand their production lines to Mexico, already one of the biggest automotive producers in the world and a highly strategic geographical hub for expanding markets. Chinese EV firm BYD plans to open up a new manufacturing plant in Mexico expected to create as many as 10,000 new jobs.
“Given Mexico’s large domestic market and strong auto production capabilities, many Chinese car manufacturers are now selling vehicles in Mexico and showing rising interest in manufacturing vehicles locally,” Bernal said. “Chinese investments also have positive impacts on local development such as job creation, income generation, technology absorption, and increased Mexico’s exports to other markets,” he continued.
Chinese companies are also keenly interested in Mexico’s potential as a green energy production powerhouse, and are already establishing themselves as key players in Mexican markets, where solar and wind energy have enormous expansion potential. Despite near-ideal conditions for large-scale solar and wind farms, the Mexican renewables market is relatively untapped after years of lagging climate action and petro-protectionism under outgoing President Andrés Manuel López Obrador.
Mexico could also be a key supplier of key primary materials, rare Earth elements, and other minerals critical to the green transition, such as lithium. China already controlled nearly ten percent of global lithium reserves and a whopping 72% of lithium refining capacity as of 2022, and they’re constantly looking to expand those holdings and shore up new supply chains, especially as the West is beginning to look for a competitive edge in those same markets.
While Mexico is so far emerging victorious from the U.S.-China trade row, however, the nation’s approach to these relationships could change over the next few years as Mexico’s freshly elected president takes office. Balancing Mexico’s strengthening trade relations with China as well as its diplomatic and economic relationship with the United States will be one of the most critical tight-rope acts for President Elect Claudia Sheinbaum.
Sheinbaum is under pressure from her own constituents to push back against an unbalanced bilateral trade primarily benefiting China, as well as from the United States, who has criticized the Mexican government for triangulating Chinese goods into American markets.
By Haley Zaremba for OIlprice.com
