We are Likely in the Midst of a Trade War with Mexico

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Feb 20, 2017 (San Diego) The signs are there. The White House has threatened to charge import taxes upwards of 20 percent for Mexican exports to the United States. In the meantime, Mexico has targeted American corn. This is Mexican Senator Armando Ríos Piter, who has written legislation that will stop the imports of US Corn. Mexico is the largest importer of American corn, and it is a staple of the Mexican diet going back ten thousand years.

They intend to replace this American corn with both Brazilian and Argentinian corn. Mexico is starting to turn south, ever so slowly

This will hurt corn growers in the midwest. Mexico is one of the largest importers. This is from CNN reporting, as well as multiple Mexican media.

This is not the only sign that a trade war has started. You want avocados? The US had agreed to allow avocados from the state of Jalisco to come in during the Obama years, but the test shipment of five trucks was stopped at the border. Mind you, those from the bordering state of Michoacan are still coming in.

but there is more to this story. Mexican officials stopped potatoes going into Mexico. So Mexico said no to potatoes, the US said no to Jalisco avocados.

We also have reports from merchants in San Diego that there is a disruption in the supply chain, and some scarcity of Mexican agricultural goods and prices are going up. We also know from sources in Mexico City that the price of some vegetables has crashed, to the point that tomatoes are now sold at pennies. Yes, produce is cheaper, but this is extremely cheap, which suggests the market has been flooded.

Are we seeing untying official? No.

What could be the consequences of a trade war? Mexico is the third largest market for US goods. This is according to the United States Trade Representative.

Exports

  • Mexico was the United States’ 2nd largest goods export market in 2015.
  • U.S. goods exports to Mexico in 2015 were $236 billion, down 1.6% ($3.9 billion) from 2014 but up 97 percent from 2005. U.S. exports to Mexico are up 468% from 1993 (pre-NAFTA). U.S. exports to Mexico account for 15.7% of overall U.S. exports in 2015.
  • The top export categories (2-digit HS) in 2015 were: machinery ($42 billion), electrical machinery ($41 billion), vehicles ($22 billion), mineral fuels ($19 billion), and plastics ($17 billion).
  • U.S. exports of agricultural products to Mexico totaled $18 billion in 2015, our 3th largest agricultural export market. Leading categories include: corn ($2.3 billion), soybeans ($1.4 billion), dairy products ($1.3 billion), pork & pork products ($1.3 billion), and beef & beef products ($1.1 billion).
  • U.S. exports of services to Mexico were an estimated $30.8 billion in 2015, 2.7% ($807 million) more than 2014, and 36.7% greater than 2005 levels. It was up roughly 196% from 1993 (pre-NAFTA). Based on 2014, leading services exports from the U.S. to Mexico were in the travel, transportation, and intellectual property (computer software) sectors.
    Imports
  • Mexico was the United States’ 3rd largest supplier of goods imports in 2015.
  • U.S. goods imports from Mexico totaled $295 billion in 2015, up 0.2% ($667 million) from 2014, and up 73% from 2005. U.S. imports from Mexico are up 638% from 1993 (pre-NAFTA). U.S. imports from Mexico are up 638% from 1993 (pre-NAFTA).
  • The top import categories (2-digit HS) in 2015 were: vehicles ($74 billion), electrical machinery ($63 billion), machinery ($49 billion), mineral fuels ($14 billion), and optical and medical instruments ($12 billion).
  •  U.S. imports of agricultural products from Mexico totaled $21 billion in 2015, our 2nd largest supplier of agricultural imports. Leading categories include fresh vegetables ($4.8 billion), other fresh fruit ($4.3 billion), wine and beer ($2.7 billion), snack foods ($1.7 billion), and processed fruit & vegetables ($1.4 billion).
  • U.S. imports of services from Mexico were an estimated $21.6 billion in 2015, 11.0% ($2.1 billion) more than 2014, and 50.0% greater than 2005 levels. It was up roughly 191% from 1993 (pre-NAFTA). Based on 2014, leading services imports from Mexico to the U.S. were in the travel, transportation, and technical and other services sectors.

Trade Balance

  • The U.S. goods trade deficit with Mexico was $58 billion in 2015, an 8.4 percent increase ($4.5 billion) over 2014.
  • The United States has a services trade surplus of an estimated $9.2 billion with Mexico in 2015, down 12.7% from 2014.
    Investment
  • U.S. foreign direct investment (FDI) in Mexico (stock) was $107.8 billion in 2014 (latest data available), a 5.3 percent increase from 2013. U.S. direct investment in Mexico is led by nonbank holding companies, manufacturing, and finance/insurance.
  • Mexico’s FDI in the United States (stock) was $17.7 billion in 2014 (latest data available), up 4.0% from 2013. Mexico’s direct investment in the U.S. is led by manufacturing, wholesale trade, and depository institutions.
  • Sales of services in Mexico by majority U.S.-owned affiliates were $43.4 billion in 2013 (latest data available), while sales of services in the United States by majority Mexico-owned firms were $7.5 billion.

 

A trade war could easily trigger a recession in Mexico, and this, in turn, could trigger illegal immigration, which is now declining. This is according to PEW. So the effect could be exactly 180 to what the White House is promising.

 

There is more. Five states, in particular, will be hurt by this trade war, especially if the North American Free Trade Agreement (NAFTA) is canceled, and it is easy to cancel. Any of the three governments just has to inform the two partners they are withdrawing. The states are as follows: Michigan, Texas, North Dakota, Kentucky, and Indiana. Did we mention all these states voted for Donald Trump in November? Yes, many jobs went to Mexico and other countries, but many jobs depend on trade with Mexico. It is a double edge sword.

In San Diego, we already see a slight price pressure upwards in fruits and vegetables due to the disruption to the supply chain.

A word has to be said about trade wars. Neither side wins in a trade war. Both lose, and they can lead to far-reaching economic consequences, and the United States could trigger an internal recession as well. We would be remiss in mentioning that one of the causes of the 1929 crash were precisely trade wars.

We asked the San Ysidro Chamber of Commerce as to how they have been affected by the boycott movement in Tijuana. We will update if we get a response.

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