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The Sunday Paper – The US-China Trade War and the Relocation of Global Value Chains to Mexico

With access to confidential data from the Mexican government for the period 2015~2021 researchers Hale Utar of the Grinnell College, Luis Bernardo Torres Ruiz of the Dallas Fed. and Alfonso Cebreros Zurita of the Bank of Mexico address the question ‘has Mexico been a beneficiary of the U.S.-China trade war begun in 2018/19?’.

The short answer is yes, of course. However the detail is where it gets interesting. Contrary to some anecdotal reports the main gains have not been in lower value added areas like textiles, footwear and clothing.

Skill intensive manufacturing such as electrical machinery and automotive industries have done especially well and for all Global Value Chain (GVC) industries the researchers identified a 17% benefit as of 2021.

Previous studies have shown Trump-tariffs costing the U.S. consumer around U$4.6bn per month and part of that must have accrued to Mexixo’s GVC operators. Thus the U.S. consumer has paid (at least in part) for a stronger manufacturing sector in Mexico and whatever collateral benefits that have accrued to the Mexican economy as a result.

The paper notes China’s retaliatory tariffs have had an effect on Mexican imports but overall the net effect of all this tarrif-ing has been an increase in the Mexican trade surplus and a re-balancing, away from China in Mexico’s favor.

For China the conclusion is unequivocally (short-term) negative. Clearly the trade war America has embarked on has, in this instance, hurt China and helped a near, and friendlier, neighbor.

The researchers don’t say it but it seems obvious, at least to me, this win in plain sight will do little to persuade the political class in the U.S. to either scale back China bashing nor relax policies currently in place; which makes sense. Sucks for China, which is I suppose the point.

You’ll find the paper in full via this link Global Value Chains and Mexico.

Happy Sunday.

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