US-Mexico fallout could bring trade opportunities to other countries

Current anti-Mexico rhetoric from the United States government includes President Trump’s call to the US automotive industry to dismantle its Mexican assembly chains or face high duty taxes on returning finished products to the US. This stance could cost Mexico many trade opportunities, according to Atradius.

Mark Hoppe, managing director, ANZ, Atradius, said, “Trade threats like this are more serious than threats of wall-building and can cause widespread economic damage. However, this could also mean a huge trade opportunity for Mexico.”

Since the North American Free Trade Agreement (NAFTA) was enacted in 1994, trade between Canada, the US, and Mexico has grown exponentially. This growth is largely due to the redistribution of resources away from Mexico’s primary trading partners pre-NAFTA.

Hoppe said, “If built, the wall could let Mexico further diversify its export destinations and reduce its overdependence on the US for its foreign trade. With more than 120 million consumers in Mexico, this market diversification policy could offer suppliers from other countries opportunities to commercially penetrate one of the Latin American markets with the most commercial potential.”

Mexico is part of the G20 and the Organisation for Economic Cooperation and Development (OECD), and has greater economic stability than many other Latin American countries. It also has a population of 120 million people, about half of whom are under 30 years old, a key indicator of a growing, emerging market. Mexico’s economic performance also tells a promising story: GDP growth slowed down in 2016 but still increased by two per cent; the government deficit is at 2.6 percent of GDP; and public debt at 50.2 percent.

Recent months have seen an acceleration of the negotiations aimed at renewing and extending the 2000 free trade agreement between Mexico and the European Union. There is also a possibility of free trade agreements in the sub-regional bloc of Mercosur (comprising Argentina, Brazil, Paraguay, and Uruguay) and Asia Pacific. Mexico is also discussing bilateral deals with Australia and New Zealand, two important food- exporting countries.

Hoppe said, “The main investment opportunities in Mexico primarily concern the energy sector, both for the exploration and exploitation of Mexico’s huge offshore oil fields, and for the development of renewable energies. Demand for environmental technologies and services in Mexico is also growing. Construction and public works offer another investment opportunity. Despite threats from the US, the automotive industry remains a key sector. Many car manufacturers have factories in Mexico, making the country the seventh-largest car manufacturer in the world.”