This article is part of a series examining the evolving relationships between China and Latin America.
Every country in Latin America faces a set of choices in how it responds to China’s growing presence in the region. For Mexico, however, the path forward is particularly complex, considering the country’s dynamic and close economic ties to both China and its frequent rival, the United States. If Mexico can effectively navigate the showdown between the two superpowers, it will go a long way in shaping not only its own economic future, but also the future of the U.S.-China rivalry.
Mexico’s relationships with both countries are complex and long-standing. Its links to the U.S. are more obvious: The two countries share a 1,954-mile border, the U.S. is Mexico’s top trading partner, and more than 36 million people of Mexican origin live in the U.S. Mexico’s relationship with China is also well-established. In 1972, Mexico became the second Latin American country to establish diplomatic relationships with the People’s Republic of China. In that sense, Mexico can be considered a lao pengyou, an old friend of China.
It’s true that China’s economic relationship with Mexico was negligible for many years, but this started to change at the beginning of this century, and the two maintain a dynamic, if challenging, partnership. China became Mexico’s second trading partner in 2003, behind the U.S. Since the turn of the century, trade with China has made up a growing share of Mexico’s trade portfolio, rising from 1% of Mexico’s total trade in 2000 to 9.8% in 2019. Over roughly the same period, trade with the U.S. fell from 81% in 1999 to 63% of Mexico’s total trade in 2019. And while Mexico’s trade with the U.S. ($619 billion in 2019) remains far greater than its trade with China ($90 billion in 2019), its trade with China has grown at a faster rate this century.
Still, Mexico’s trade with China is unbalanced: We import much more from China ($83.05 billion in 2019) than what we export ($7.14 billion) even as Mexico’s exports have been growing, driven by oil, mining products, automotive parts and electronics. This will remain a pressing challenge for Mexico in the near future, as experts at think tanks like the Atlantic Council predict that while Mexican-Chinese trade will continue to grow until 2035, it will remain overwhelmingly favorable to China.
Mexico is importing more products from China that it once might have sourced from within North America. In 2019, Mexican imports from China represented 17.7% of Mexican total imports in the sectors of electronics (particularly mobile telephones), auto parts and motor vehicles, areas in which the U.S. was the traditional supplier. China’s participation in the automotive industry, which was the backbone of NAFTA and continues to be the backbone of its replacement, the USMCA, is also becoming more evident. This would explain why the rules of origin for the automotive sector increased from 62.5% to 75% of regional content in USMCA.
Still, the data also shows how complex the relationship between the three countries is, as trade between Mexico and China is directly related to North American supply chains. This is quite different from the trading relationships with China of other Latin American countries, which often rely fundamentally on commodities.
On the other hand, it is also important to note that China has not invested in Mexico at the levels it has done in other Latin American countries like Brazil, Peru and Ecuador. From 1999 to 2018, China invested only around $1 billion in Mexico, according to statements from Economy Undersecretary Luz María de la Mora in December 2020. In comparison, according to data from Mexico’s economy ministry, the U.S.’s accumulated investment in Mexico from 1999 to June 2021 was $292.6 billion—equivalent to 46.8% of all investment in Mexico in the same period.
The dynamic may be changing. Recently, the China Communications Construction Company, associated with the Portuguese company Mota Engil, won a tender to build a section of the Maya Train, one of President Andrés Manuel López Obrador’s flagship projects. Chinese companies also won tenders for oil exploration and production in the first rounds of the Mexican energy reform. Hong Kong-headquartered Hutchison Ports Holding, meanwhile, manages Mexico’s most important ports.
Beyond trade
Limiting Mexico-China ties to trade and investment, however, is a misguided approach, as the relationship goes beyond the two and is increasingly geopolitical in nature. In 2003, for example, both countries established a “strategic relationship,” and in 2004, they agreed to create a binational commission. When President Xi Jinping visited Mexico in 2013, the relationship was upgraded to be an “integral strategic relationship,” followed by the creation of various high-level working groups on investments and entrepreneurship.
Both countries are members of the G20 and the Asia-Pacific Economic Cooperation (APEC) and participate in dialogue through the Community of Latin American and Caribbean States (CELAC), which Mexico currently chairs. Both countries are now members of the U.N. Security Council and participate together on several executive bodies of other multilateral organizations.
We also have common interests and positions in international financial organizations that support high and middle-income countries like Mexico and China, which still have huge pockets of poverty. Both countries have championed South-South development cooperation, trying to eradicate the traditional donor-recipient dichotomy. At the same time, Mexico has not yet become part of the Asian Infrastructure Investment Bank founded by China nor of the initiative One Belt One Road.
A changing relationship
The China-Mexico relationship has changed in several ways due to the pandemic. China has been one of the first and most important suppliers of vaccines and personal protective equipment to Mexico. Up until September 2021, Mexico had acquired 103 million doses of vaccines, around 19.4% of which came from China’s Sinovac laboratories and 7.1% from China’s CanSino. That is almost 27% of all the doses received in Mexico. In comparison, the U.S. had supplied Mexico with around 17% of vaccines, basically from Pfizer (even though the first doses arrived from Belgium), Johnson and Johnson, and more recently AstraZeneca and Moderna.
But COVID also affected global supply chains, and in North America we suddenly realized that we were too dependent on Chinese products, namely in the auto industry, aerospace, electronics, pharmaceuticals and medical equipment—particularly relevant during a health emergency. In difficult times, Mexico showed itself to be a reliable partner to the U.S., coordinating with the private and public sectors to ensure essential sectors stayed open and operating.
The challenges of the pandemic also strengthened the trend toward nearshoring and the relocalization of value chains. In practical terms, producing key ingredients and supplies for North American value chains in the region, taking advantage of the USMCA, which is not only a free trade agreement but also an instrument to spur investment in the region.
Mexico could and should benefit from this re-localization of value chains. But until now this obvious trend has not materialized, and other countries like Vietnam seem to have benefited more. Therefore, one of the main objectives of the relaunched High Level Economic Dialogue (HLED) between Mexico and the U.S. is to strengthen the resilience of supply chains in North America.
This will, of course, affect China. Some experts in Mexico-China relations, particularly from the CECHIMEX Center at National Autonomous University of Mexico (UNAM), the most important think tank in Mexico specializing in this area, have warned that Mexico lacks a strategy and a concrete agenda in the short, medium, and long term with China.
If true, we should consider defining a strategy to be of utmost importance. This will imply a clear and strong commitment from the U.S. to invest in Mexico and Latin America and the Caribbean more, as well as an attitude of partnership and not dominance.
As Mexican leaders define this strategy, they will have to consider several questions.
- China is the main competitor in the U.S. market for certain Mexican products. Is it feasible to substitute those U.S. imports from China with Mexican imports? If so, what is the best way to do this? And can Mexico substitute some of its imports from China with American or Latin American imports?
- Mexico, China and the U.S. should work together to identify areas of trilateral and multilateral cooperation. The most obvious example is cooperation on climate change.
- The three countries should increase their cooperation against transnational criminal organizations, which are active not only in drug trafficking, but in people trafficking, illegal fishing and the illicit trade of endangered species.
- Mexico’s economic competitiveness is directly linked to information technologies, one of the areas of fierce confrontation between the U.S. and China. Which 5G system Mexico adopts is one of the big issues to be defined.
These are just some of questions and ideas that will have to be considered soon. It is possible that the High-Level Economic Dialogue between Mexico and the U.S. and the Summit of the Americas, which will take place in the coming months, can be an effective forum to start tackling them.
In the end, while the economic and foreign policy decisions that Mexico will adopt regarding China will also affect the U.S., a constant presence and partner, they will be based on its own national interest—on what is good for Mexico and the Mexicans. Still, a confrontation between the U.S. and China will benefit neither Mexico nor its neighbors.
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Bárcena is a former ambassador of Mexico to the United States. She is also a columnist at El Heraldo de México.
