Beijing officials are increasingly worried that President Trump’s tariffs in Mexico may be the beginning of a wide campaign that forces developing countries around the world to choose between trade in the United States or China.
Since Mr. Trump has deposited extensive tariffs from China from China during the first term of office, they have invested in countries such as Mexico, Vietnam and Thailand to compile Chinese components in goods for transport to the United States. The final assembly in these countries offered the rear door to the US market regardless of trade friction between Washington and Beijing.
The Chinese surplus with the United States has decreased by almost a third since 2018. Chinese exports to developing countries, however, increased sharply. China now sells Mexico 11 times as much as China buys. Sales include Chinese automatic parts assembled in Mexico in cars intended for sellers in the United States.
Beijing is now concerned that the pressure in Washington could force Mexico to close its market for Chinese goods in exchange for retribution from American tariffs Mexico trade. Mexico stakes are, among other things, jobs created by abundant trade in the United States.
Mr. Trump could then use Mexico as a model to require other countries to participate in trade wars between the United States and China. This would further reduce the Chinese approach to the huge US market by disturbing other routes to the United States.
Because Mr Trump again negotiated a North American free trade agreement during his first term, very few entrepreneurs or officials in China expected to launch the second term by threatening steep tariffs in Mexico. Several unique characteristics of the business and legal arrangements that China with Mexico means that Chinese indirect access to the US market is particularly at risk during the ongoing confrontation between Mr. Trump and Mexico.
Especially worrying for Chinese officials is a unclear gap that has been baked in the rules of the World Trade Organization when it was created in Geneva in 1995. The gap allows mexico-and potentially dozens of low-income countries and countries-countries should be affected.
Chinese officials mentioned their nervousness to maintain access to emerging markets during the weekly annual meeting of the Chinese legislature that ended on Tuesday. Wang Weao, Minister of Commerce, at a press conference noted that a little more than half of the Chinese international trade was with countries belonging to Initiative to belts and roadsChinese reach to less rich countries in Asia, Eastern Europe, Africa and Latin America.
“We haven’t brought all our eggs into one basket that shows the strong resistance of Chinese foreign trade,” Mr. Wang said without mentioning that many Chinese exports to these countries eventually end up in the United States.
He took care of pointing out that 34 percent of Chinese trade were with countries with which he had free trade agreements. This is significant because these agreements, especially with countries in Southeast Asia, bind signatories so that they suddenly do not increase tariffs.
Mr. Wang demanded other such agreements with “willing countries and regions”.
Mexico is not one of the 27 countries that has signed a free trade agreement with China, so the Mexican government can increase tariffs to Chinese goods.
Mexico is also one of several dozen developing countries that have been members of the general agreement on tariffs and trade that preceded the creation of WTO, which have achieved these countries in the establishment of the WTO, with very few binding obligations to reduce their tariffs. Instead, they were encouraged to gradually reduce tariffs voluntarily.
According to the WTO, Mexico has reduced its average tariff to 7 percent, but the average “bound” tariff of Mexico – which could start charging immediately by simply sending WTO notifications – 36 percent.
If Mexico was to increase its tariffs to China, many other countries with the same WTO agreement could face pressure so that we do not become leadership for Chinese goods. Brazil, for example, applies an average of 11 percent tariffs, but its bound tariff is 31 percent.
WTO rules countries since the increase in tariffs to one country. While Mr. Trump ignored the rules, most of the other countries, including Mexico, China and the European Union members, are trying to avoid it, except when other countries are launching a trade war.
However, the WTO allows countries to increase tariffs to their highest bound ceilings, provided that the increase is related to all imports of targeted product from around the world. China exports almost all world offers in many categories of goods produced. This allows developing countries to increase its applied tariffs in these categories and hit almost exclusively goods from China.
China’s hope is that other large business nations refuse to choose between China and the United States.
“I don’t think these close business partners with China choose a party, especially those who have free trade agreements, even if they have high binding tariffs on the WTO,” said Xinquan, Dean of the Chinese Institute for WTO at the University of International Business and Economics in Beijing. Mao founded the university in 1951 to train and advise Chinese business negotiators.
Unlike leaders in Canada or the European Union, President Claudia Sheinbaum of Mexico said little publicly during the recent business dispute, although her government focuses strongly on this matter. The Mexican Ambassador in China, Jesús Seade, helped create WTO at the beginning of the 90s and played a central role in Mexico’s diesel negotiations with President Trump in 2018.
China is lucky that Vietnam, his largest partner for indirect exports to the United States, trades according to various rules than in Mexico because it did not join the WTO until 2007. Commercial organizations required developing countries that joined after 1995 to accept lower ceilings to their tied tariffs.
Vietnam applies an average tariff of 9 percent and an average bound tariff that could use it rises to only 12 percent. Industrial countries, such as Canada, also have low -bound tariffs that limit their ability to charge more for goods from China.
The Chinese economy is very dependent on the large and constantly expanding trade surplus that has reached Last year nearly $ 1 trillion. Almost all Chinese exports are produced goods and its surplus in this goods last year has become about a tenth of its entire economy.
This is a level that the United States has not reached even after World War II, when the US industry quickly returned to civilian production and increased exports because the rest of the world lies in ruins.
China depends on growing exports because the housing market has caused Chinese households to be reluctant to spend, limiting the ability of the economy to grow in other ways.
Another vulnerability is that most Chinese trade surplus is with developing countries. These countries, in turn, rely on the operation of their own trade surpluses with the United States to pay for the goods they import from China and draw the anger of Mr. Trump.
