While analysts watch a potential trade shoot-out between the US and China, US president Trump might help China in other ways, for example helping them compete with Mexico, says Peking University professor Jeffrey Towson in the China Daily. Mexico has been winning from China in producing cars and autoparts, and abolishing NAFTA might change that.
The China Daily:
Trump has also already criticized Ford, General Motors and Toyota for moving facilities to Mexico and has stated they will have to pay this 35 percent tax to bring their cars into the US. Ford had the unfortunate luck of announcing an end to all of their US production of small cars in the middle of the election, which got a response from candidate Trump. Ford have now canceled their planned $1.6 billion plant in Mexico. Without question, the potential for upcoming changes to NAFTA and car imports is already having a chilling effect on investment into Mexico.
However, for Chinese manufacturers this could be a positive development. For them, this looks like their biggest competitor for exports to the US may be about to lose its biggest advantage, a largely tariff-free border. Plus, Mexican exports to the US are heavily weighted to automobile-auto parts, the area Trump is focusing most on. For China, broad changes to NAFTA could result in a leveling of the playing field in certain sectors in terms of tariffs.
It is also worth noting that Chinese manufacturers have already been catching up with Mexican manufacturers in automobile-auto parts, just as they have in most other industries. In 2014, China passed Canada and became the second-largest exporter of automotive parts into the US after Mexico. Even before the recent comments, Mexican manufacturers were worried that China might be granted a lower tariff.
Ultimately, there are a lot factors in each sub-sector when it comes to trade, whether its tariffs, shipping costs, changing currencies or others. So it’s difficult to generalize too much when it comes to Mexico and Chinese manufacturers.
However, we can conclude that Trump’s recent pronouncements about auto imports and NAFTA are much worse for Mexico than China. And they raise a very intriguing question: Without NAFTA, can Mexican manufacturers successfully compete with China?
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