1. Home
  2. Regions
  3. Latin America
  4. Mexico

Mexico will struggle to diversify trade

Thursday, February 16, 2017

With over 80% of Mexico’s exports going to the United States, US protectionism could do untold harm to Mexico’s economy

Mexico’s only trade surplus is with the United States... ... While prospects for substantially increased trade elsewhere in the world look bleak.

Source: Trading Economics, UNCOMTRADE

Outlook

The protectionism of US President Donald Trump has made acute Mexico’s long-recognised need to diversify its trade relations. While the rest of the world does present trade opportunities, the obstacles that have prevented Mexico from breaking its US dependence still stand, and new ones are emerging.

Mexico’s geographical position -- once key to its economic success -- may become a hindrance, impeding trade with distant Asian and European markets, particularly of bulky exports such as cars. Moreover, foreign manufacturing investment could suffer if Trump introduces heavy taxes on Mexican imports.

While words of solidarity from Latin America may bolster hopes of stronger regional ties, modest economic growth and clashing interests suggest such rhetoric may not evolve into anything more concrete.

Impacts

  • Import taxes will spur smuggling of otherwise legal goods into the United States, diversifying cartel activities and boosting their profits.
  • The weak peso could cushion the blow of import taxes temporarily, buying Mexico some time to pursue new trade deals.
  • The United Kingdom’s need for quick post-Brexit deals, and inexperience in negotiating them, could either benefit Mexico or frustrate talks.

See also