As Mexico shifts trade posts and raises tariffs, China urged to alter its own approach to maintain gains

Of all Mexico’s trading partners, mainland China, which accounts for 17.9 per cent of Mexico’s total imports, would be affected most, although Mexico’s other importers, Brazil, Taiwan, South Korea and India are also expected to suffer because they do not have a free-trade pact with the country.

He Yadong, spokesman for China’s Ministry of Commerce, said the tariffs would increase production costs of downstream industry and had affected bilateral trade.

“We hope Mexico can stick to the free-trade principle and remain cautious in implementing such measures,” He said at a press conference last week. “The higher tariffs of Mexico will affect investors’ confidence. China is closely monitoring the issue.”

However, the latest available data on China’s exports to Mexico could be too early to show the impact of the new tariffs, which only kicked off in mid-August, because China’s exports to Mexico were still on the rise in August at US$7.6 billion, a 5 per cent growth from July, according to Chinese customs.

Chinese enterprises have poured US$20.84 billion into Mexico-based projects since 2008, with US$8.29 billion of that arriving since 2018, according to data from the research portal Latin America and the Caribbean Network on China.

China’s overall trade with Mexico grew by 4.79 per cent in the first seven months of the year, making it the only country to have recorded trade growth among China’s top three trading partners – which also include Brazil and Chile – in Latin America.

Shunned by US, China investors eye Mexico to grab North American market

Trade experts have said that despite the proportion of US imports from China decreasing, the ongoing supply chain shift has China shipping to an intermediate country – such as Mexico or Vietnam – before goods arrive in the US.

While both China and America’s trade ties grew with Mexico amid their bilateral trade tensions, the Mexican government has also been coming up with new policies in the face of these changes in its domestic economy.

The latest half-year company report published in August from a leading Chinese battery materials supplier – Ganfeng Lithium Group – said its nine lithium concessions previously granted by the Mexican government had been cancelled, adding to uncertainty about whether it could continue with mining plans first introduced in 2019.

China’s lithium batteries are under a 7.5 per cent tariff when imported to the US under Section 301 tariffs on China.

In the first half of this year, the Mexican government initiated an anti-dumping investigation against steel balls and rods, and passenger and light-truck tyres originating in or imported from China.

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China restricts critical metal exports following Western semiconductor curbs in latest trade war

China restricts critical metal exports following Western semiconductor curbs in latest trade war

In the face of the new tariffs imposed on Chinese products, Chinese trade lawyer Sun Lei warned Chinese companies to expect more trade-related costs in Mexico, including greater tariffs.

“For companies that have shifted their investment [to Mexico], it is necessary to assess the stability of the supply chain and make necessary adjustments according to the rising cost of imported materials,” Sun, a senior partner at the Beijing-based Dacheng law firm, said in a note last month.

Sun also advised companies that ship steel-related materials to Mexico to shift their production chain to locations that have a trade agreement with Mexico.

A Western-led challenge to China’s belt and road? Not so fast, analysts say

He Weiwen, a senior fellow with the Beijing-based think tank Centre for China and Globalisation, said China should adjust its trade and investment pattern as Mexico and Vietnam’s importance to Beijing rise.

“[The Chinese government] should encourage Chinese businesses to invest more in Mexico, and further enhance exports from there to the US,” he said.