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2018年9月11日 (火)

China can learn from Mexico to fight trade war


  Mexico, together with Canada and the EU, announced retaliatory measures on June 1 in response to US trade protectionism. The Mexican tariffs target products such as iron, lamps, pork, processed meat, apples, grapes, blueberries and cheese. Mexico's highly calibrated tariff strike offers some lessons for China, which is in the middle of its own trade frictions with the US.

  The measures meticulously plan to attack the traditional Republican districts in this year's mid-term election and the home states of Republican big shots.

  Mexico is the largest export market for US pork, including variety meat, representing nearly 33 percent of all US pork shipments last year, according to the US Meat Export Federation (USMEF).

  The hog and processed meat industries are scattered around the central US. Iowa, North Carolina and Minnesota are the top three states by pig inventory. Large processed meat producers can be found in states such as Kansas, Arkansas and Colorado.

  Almost all of these states currently have Republican incumbents in the House. With all of the 435 seats in the House open to contest, those central US states, suffering the damage from a trade conflict initiated by a Republican president, will struggle not to swing to the other party.

  Mexico has been the second largest importer of US apples and grapes for years, most of which are produced by farmers in California, Florida and Washington. House majority leader Kevin McCarthy, who is a Republican, serves California's 23rd congressional district, and young political star Marco Rubio is a Republican senator for Florida.

  Though Mexico's counterattack is right on the mark, the amount affected is limited compared to the $560 billion in bilateral import and export volume. It is more of a gesture than a fatal blow. Mexico, which relies on the US economically, is facing a dilemma. It does not have enough bargaining chips, nor does it have space to back out.

  China and Mexico both have a trade surplus with the US, but China and the US are more or less on equal footing. Mexico, on the other hand, is a much smaller economic entity and depends greatly on the US. Since NAFTA was signed in 1992, Mexico-US trade volume has grown 8-fold, and 60-80 percent of Mexican products make their way to the country's northern neighbor. Mexico does not have enough fuel to fire the boat.

  NAFTA renegotiation has entered its eighth round, but the future is still uncertain. With the presidential election on July 1 approaching, current Mexican president Enrique pena Nieto would like to settle the NAFTA agreement before stepping down. The compromise he is willing to make is unlikely to meet Trump's demands.

  Aside from NAFTA, president pena Nieto already carries enough baggage, including a corruption scandal and worse public security. With his approval rating dropping to new lows, and anti-American sentiments high in Mexico, he does not have much leeway on trade matters.

  Therefore, president pena Nieto is forced to react, but not too hard. Mexico is hardly leaving a massive wound on the US with its tariff increases. But the highly anticipated counterattack is indeed accurate. China, which is also a victim of US protectionism, can learn from Mexico's tactics.

  Mexico knows and understands the US. As a neighbor of the US, it has close trade ties and high population mobility across the border. China needs to study the US trade system and politics closely, and more experts are needed with knowledge of US interest groups.

  Also, China can learn how the Mexican government, local media as well as media from across Latin America and Spain put pressure on the US. China will need to cooperate with third party media to let different voices be heard and win international support.

  The last lesson is to team up with other countries. The EU and Canada took Mexico's side. Central and South American countries gave their support because Mexico is fighting for them. What happened to NAFTA today could be used as an example to deal with other free trade agreements with other Latin American countries. China will have to work with other countries targeted by the US under different multilateral organizations.