From many perspectives, China and Mexico can be considered competitors, especially when it comes to their goal of securing as much in terms of US market share for their exports as possible. Needless to say, it would be a “bit” of an understatement to point out that Mexico is highly dependent on the United States, and the fact that Mexican exports to the US have decreased from the staggering 82.42% value of 2000 to roughly ¾ at this point offers little in the way of relief.
In fact, the let’s say NAFTA block as a whole gradually felt more and more threatened by China, in light of the fact that Chinese exports which flood the market put a dent in the plans of many nations with respect to securing US market share, especially since China became a World Trade Organization member back in 2001, a topic we have covered through a dedicated article.
Is the actual situation genuinely that gloomy?
No, for the simple reason that China doesn’t exclusively take, with even the exact opposite sometimes happening and China ultimately becoming the main trading partner of some of the nations which felt threatened by it at the beginning of its ascension. From ever-increasing bilateral trade numbers to the infrastructure-oriented investments China became famous for, let’s just say there is quite a bit of money on the table for geopolitical players who embrace rather than try to ostracize China.
Is the same principle valid when it comes to Mexico?
Simply put… no.
For more than objective reasons such as geography-related ones, it is remarkably difficult to envision a context in which China actually surpasses the US and becomes Mexico’s #1 trading partner, it is simply not feasible. On the other hand, there is absolutely nothing wrong with China “settling” for less than the #1 position, with the current status quo which revolves around China occupying position #3 as a destination for Mexican exports (behind the US and Canada) representing a more than noteworthy accomplishment. As time passes, China may very well surpass Canada, although at this point in time, Mexican exports to China would have to double for that to happen… so a goal of this nature would need to be set on higher timeframes. The same way, Mexico is well within its rights to set goals which revolve around being a top 15-20 trading partner of China. Again: the word “dominance” is not required for a trade relationship to be considered successful.
As such, while Chinese dominance in Mexico is pretty much out of the question, this doesn’t mean China does not represent an extremely juicy market for Mexican goods. On the contrary, remarkable growth has been experienced in terms of trade between the two entities and should it persist for an extended amount of time, position #2 for China as a Mexican export destination may be within reach.
Furthermore, the “threat” represented by Chinese exports in the context of the China – Mexico – US triangular relationship has been greatly exaggerated.
Why and how?
Simply put, we need to understand that not all exports are created equal and the more we look under the proverbial hood of the triangular relationship in terms of export structures, the more we realize that Chinese and Mexican interests don’t always have to clash.
At this point in time, structure-wise, Chinese exports to the US tend to be related more so to heavily labor-intensive products, in light of the fact that China does not have enough of an edge in this department to justify the (much) higher transportation costs. No matter how significant of an export powerhouse China is, geography is sometimes remarkably hard to beat.
In contrast, Mexico exports anything from electronics and auto parts to automobiles, industrial equipment or services. It’s ultimately all a matter of leveraging edges and fortunately for Mexico, it has quite a few up its sleeves. For example, transportation costs are obviously quite prohibitive when it comes to transporting let’s say industrial equipment from China to the United States and far less so when it comes to Mexico. In other situations, Mexico has different advantages which make a difference, with services representing a textbook example to that effect. If a US company is interested in launching a call center for its large Spanish-speaking client base, jurisdictions such as Mexico would obviously represent a superior destination to China. Even when it comes to English language call centers, there is just much less of a language as well as cultural barrier when it comes to Mexico and the list could go on and on.
From a game theory perspective if nothing else, this triangular relationship has quite a bit going for itself in terms of incentives to reach a “win-win-win” status, a situation which represents precisely what China wants as far as the Mexican equation is concerned. While there are many unknowns when it comes to the manner in which the Chinese authorities see the world, there is a quasi-consensus among experts that pragmatism represents an easily identifiable common denominator.
And in the spirit of just that, China understands the importance of picking its battles by aiming for domination whenever it makes sense (from neighboring countries to even the African continent) and settling for the next best thing in landscapes where the United States is much better (geographically) positioned to dominate. Its relations with Mexico can and should be perceived from the latter perspective.
The ChinaFund.com team hates using the term “predictable” and will therefore settle for “straightforward” in light of the fact that yes, this seemingly complicated triangular relationship is actually reasonably straightforward for the trained eye. Needless to say, should you or your organization be interested in renting out ours, we are only a message away and can be reached through the Contact section of our website.