China may emerge as the victor as a public and bellicose battle with the Mexican government is waged by President Donald Trump.

As Trump presses Mexican President Enrique Peña Nieto to finance construction of a border wall and threatens to renegotiate the North American Free Trade Agreement, the world’s number-two economy is closely watching.

Under both scenarios, an already slow Mexican economy could deteriorate further. Either way, Beijing is likely to emerge as a contender to replace the void left by Washington and Mexico will look to reduce dependence on its largest trading partner, strategists widely agree.

“Like other countries worried about the uncertainties of a Trump administration, Mexico will look to deepen engagement with China,” said Shawlin Chaw, senior analyst at Control Risks. “The mainland is a natural choice due to its economic power and in return, Beijing will able to increase the international market for Chinese exports and diversify its sources of raw materials.”

According to the World Bank, with exports to the mainland China tallying $4.9 billion, China was Mexico’s third-largest trading partner in 2015 and the country has one of the highest number of bilateral trade agreements in the world. With business deals already underway, the two pledged to strengthen ties at a meeting in December. More than $212.46 million into SUV production in Hidalgo would be pumped by Anhui Jianghuai Automobile and Giant Motors, partially owned by Mexican billionaire Carlos Slim, the company announced on Wednesday.

In regions well outside its backyard as it looks to cement status as a global superpower Bejing has been carefully extending its sphere of influence with investments in Africa to South America. China is looking to exploit that dynamic and concern over the apparently isolation-prone Trump administration has already been expressed by a number of U.S. allies. Saying his country was ready to take on a leadership role in international trade, Chinese President Xi Jinping emphasized that point at the World Economic Forum in Davos last month.

“China will certainly fill up the American vacuum in Mexico,” said Jonathan Bogais, adjunct associate professor, at the University of Sydney. Peña Nieto’s other options include the European Union and Japan, but Bejing is the most obvious choice, he added.

Reflected by his promises of constructing a U.S.-Mexican border wall and labeling Beijing a currency manipulator, China and Mexico were also early targets of Trump during his election campaign, aside from the natural economic attraction.

Experts however said that increasing economic engagement won’t be easy despite that connection. New trade will require careful negotiation to avoid overlap as both countries rely heavily on manufacturing.

“It is unlikely that Mexico would be able to integrate itself into Asian supply-chains,” said Josef Jelinek, senior China analyst at Frontier Strategy Group. “Given the extent of Chinese protectionism and economic nationalism, Mexico would likely be seen as more of a competitor than as a complimentary partner by China. In addition, Mexico would be at a cost disadvantage with regards to transshipments, being cheaper and easier to ship within region.”

Bogais suggested that in return for Mexican exports into China-controlled markets, Chinese investment into Mexico, particularly in infrastructure could be one possible compromise.

According to Chong Ja Ian, a political science professor at the National University of Singapore, the fact that Beijing is limiting outbound investment in order to control capital flight spurred by heavily leveraged state owned enterprises and local governments, is another fact that will also hinder further economic partnerships.

(Adapted from, CNBC)

Categories: Economy & Finance