Mexico: profiled for a rapid recovery in exports?

Published on 22 May 2020

The WTO forecast in April that Mexico's exports would rebound sharply in 2021. What is the trade profile that would allow it?

The recovery from economic paralysis, caused by quarantine throughout the world, depends largely on the expected support from governments and international organizations, but this will not have an efficient impact if international trade is not exploited. In the case of Mexico, the World Trade Organization (WTO) announced in April that it projected that there will be an abrupt recovery in exports next year, which will depend on the conditions of the information technology, hydrocarbon, vehicle markets, and agribusiness, as analyzed in this article.

A fundamental part of the stimulus depends on the recovery of the demand for imported goods, crucial for the impulse to be more efficient, by facilitating the maintenance of access to low prices. This may sound counterintuitive due to the primary reasoning that the best way to promote improved welfare is to boost domestic production. However, the competitiveness of local production depends on access to products at a lower price and with higher quality, and international trade plays a fundamental role in achieving this.

The coronavirus has already dramatically impacted the trade movement globally, and the move has been tangible since February. The following tables show Mexico's response compared to other countries in the world, as well as the composition of its export portfolio and the distribution of its destinations.

As can be seen, the blow in international markets was registered from the second month of the year. Mexican exports took longer than those of the rest of the countries to begin registering a fall that is expected to be more pronounced when the figures for March and April are included.

In general, except for vehicles, the Mexican product portfolio is linked to inelastic demand products, such as oil, telecommunications equipment, and information technology, minerals, and food. In the following tables, the composition of the export portfolio is observed, which although it is also exposed to the paralysis of the global economy, could recover quickly if the global economic machinery is started: both raw materials and technological equipment are fundamental to reactivate any economy, both industrial in the first case, and the whole in the second.

In general, if the markets of China, Europe, and the United States are the first to recover, as suggested by the age of the occurrence of the virus in the first case, such as stimulus packages and trade openness to Mexico. In the case of the latter, the United States can take advantage of the benefits of its treaty with Mexico and Canada (United States – Mexico – Canada Agreement), the successor to NAFTA, to facilitate the boost.

Given the circumstances, what happens in 2021 will depend on both the economic dynamics of the main destinations and the use of trade liberalization. It remains to be seen the effects of what has been achieved over years of the open policy, which could be wasted if nationalist approaches prevail.

For more information on the foreign trade of Mexico and its commercial partners, you can enter the Veritrade portal.
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