Claudia Sheinbaum and Mexico’s trade balancing act with China

Along with the arrival of the first woman president in Mexican history, the governing party and its allies now hold a congressional majority. This not only ensures the passage of annual budgets and presidential initiatives but also opens the possibility of enacting constitutional amendments.

In terms of its trade relationship with China, Mexico’s second largest trading partner since 2003, achieving greater transparency and reducing the unbalanced bilateral exchange of goods could be one of the most complicated challenges for the new administration.

Although Mexico’s presidential elections this year confirmed predictions that Dr Claudia Sheinbaum, the official candidate, would be elected president for the next six years, there were still some welcome surprises.

First and foremost is the overwhelming victory achieved by Dr Sheinbaum, who garnered 35.9 million votes, nearly 60% of the total. These figures surpass those of the incumbent in the previous 2018 election, who garnered 30.1 million votes and 53.19%, respectively.

Secondly, the governing party (Morena) and its allies (PT and Verde) will have absolute control in the Chamber of Deputies (lower house of Congress), since together they are estimated to have won 372 seats out of 500, surpassing the two-thirds majority. In the Senate of the Republic (upper house of Congress), they are estimated to have also garnered nearly two-thirds of the seats with 83 out of 128 seats.

In line with Mexican current regulations, in approving public budgets and presidential initiatives related to secondary laws, simple majority votes (251) are sufficient in the lower house; and constitutional recommendations require a qualified majority in Congress which implies more than two-thirds or 66.7% of the total Congress members, plus the approbation of at least 17 state local Congresses.

With these two surprises in the bag, Dr Sheinbaum hopes to count on massive support in her six administration years.

The pleasant surprises of the elections must be balanced with difficult realities in foreign affairs under increasing global protectionism and geopolitical conflicts. During the campaign period, Dr Sheinbaum’s economic adviser, Altagracia Gomez, had emphasised the need to diversify Mexico’s external commercial exchanges in both imports and exports. This strategy is expected to further boost economic growth under the upcoming administration.

Along the same vein, in a meeting with the representatives of the financial sector at the Annual Banking Convention held in Acapulco, the then presidential candidate pronounced that although Mexico would maintain close ties with China, the most important ties for the country were those with the US.

Therefore, reconciling trade relations with two of the world’s economic superpowers, which are also Mexico’s most important business partners, amid ongoing hegemonic fights and US-China trade frictions, could be one of the most challenging tasks in the next six years.

Firstly, since at least 30 years ago, the unbalanced trade relationship with China has been extensively discussed and debated across various sectors and levels, primarily due to Mexico’s escalating trade deficits since China joined the World Trade Organization (WTO) in 2001.

The trade deficit reached US$104.1 billion in 2023, 40 times more than the figure registered in 2000, although it was a momentary decrease from 2022.

Secondly, the competition between China and Mexico has not only persisted within Mexico’s domestic market but also extends to their common export destination, the US.

According to trade data, China lost its position as the US’s top trading partner in 2019, a position it had held since 2015. In the same year, Mexico briefly became the US’s top trading partner. Besides, in 2023, the US purchased more merchandise from the members of the United States-Mexico-Canada Agreement (USMCA) than from China and other countries.

Thirdly, and perhaps most significantly, bilateral trade in goods between China and Mexico has been influenced by additional factors stemming from trade frictions and decoupling measures implemented by the world’s two largest economies in recent years. In this sense, the unbalanced trade relationship between China and Mexico would be even more difficult to manage for an incoming Mexican government and could potentially lead to confrontations, as has been documented by researchers such as R. Evan Ellis (2023) and Juan González (2015).

Specifically, on one hand, the US government and some legislators have criticised Mexico for allegedly triangulating Chinese products into American markets. For example, the US trade representative has reproached Mexico for what it perceives as insufficient transparency regarding its imports of steel and aluminium from third countries, mainly China. There have been warnings about the possibility of reintroducing tariffs on steel imports from Mexico, as was briefly implemented between 2018 and 2019.

On the other hand, the US authorities, particularly Treasury Secretary Janet Yellen during her visit to Mexico at the end of 2023, have warned about dangerous Chinese investments. They called for additional measures, such as strengthening investment security screening and cross-border payment systems, to mitigate risks to the automobile industry and US national security. However, Yellen clarified that the US does not intend to curtail investments from China to Mexico.

In light of this fragile and delicate panorama of trade relations with China, it is understandable that among the 24 recommendations presented by the COMCE (Consejo Empresarial Mexicano de Comercio Exterior, Inversión y Tecnología), the most important local business organisation in foreign trade issues, one of the most notable is the urgent need for the new administration to improve transparency in its trade relationship with China, in addition to lowering the trade deficit.

The new Mexican administration’s proposed diversification of foreign trade is likely to prioritise reinvigorating bilateral trade negotiations with South Korea in Asia; with Brazil, Argentina, and Ecuador in Latin America; and with the UK in Europe. It would also expedite the signing of a modernised EU-Mexico Global Agreement.

While achieving transparency in the trade relationship with China would be desirable, it may not be entirely feasible. However, Dr Sheinbaum and her team should prioritise efforts to foster reconciliation with both trading partners, ensuring that China remains a source of opportunities for Mexico while maintaining its status as a key trading partner.

Concretely, a transparent bilateral trading relationship would clear up all doubts related to the possible triangulation of Chinese products to the US, as criticised by the US government and their legislators. It would also make clear that Mexican export manufacturers are capable of transforming Chinese inputs, intermediates and equipment into final products to cover the growing demands of US consumers.

However, given the persistent inefficiencies in Mexico’s value and supply chains, at least in the short and medium terms, the maintenance and enhancement of export-oriented manufacturing sectors would heavily rely on imports, particularly from China.

Considering that the majority of Mexican exports have long been sent to its northern neighbour’s market due to geographical proximity and established logistics, it is difficult to expect these same exports to be delivered to China instead of the US. Therefore, correcting Mexico’s current trade imbalance with China would be a formidable task.

Related: China-Mexico-US trade relations remain evermore interdependent | ‘World’s factory’ status threatened as supply chain shifts away from China