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China-Mexico free trade: how likely?

Monday, July 17, 2017

China wants to have a free-trade accord with Mexico, say the Chinese ambassador and the state news agency Xinhua, both of which are considered reliable sources within the Chinese political elite.

The idea sounds good in theory - but putting into practice may be hard.

Both countries share a potential problem of being significantly affected, if the United States were to add new taxes to imports, or create incentives for American companies to invest at home.

Mexico and China last year had trade surpluses with the United States of $64 billion and $347 billion, respectively.

Together, the two countries accounted for 56% of the United States total trade deficit of $736 billion.

Meanwhile, the United States is the biggest direct investor in Mexican production facilities.

A market of 130 million people, with an average purchasing power of $10,000, could be interesting for China.

China in addition might want to invest with local partners in plants whose products can be exported freely to the United States, under the term of the North American Free Trade Agreement.

On the other hand, a Chinese investor could do this today.

As for free trade, the Mexican business community “breaks out in a rash” at the mere mention of a pact with China, which competes with Mexico in many areas of production, said Jaime Zabludovsky, a director of IQOM consultancy.