- Mexico could pick up more than 25% of China’s current trade share if US importers look elsewhere.
- US President Trump announced 10% tariffs last week on $200 million of Chinese goods, but many analysts expect that will increase to 25% in January.
- Macquarie modeled which countries could pick up the slack if Chinese imports become too expensive.
Mexico stands to benefit the most as an alternative US trading partner if the US-China trade war escalates further, Macquarie says.
Global markets are assessing the potential fallout after President Trump hit China with 10% tariffs on another $200 billion of imports last week.
The initial response was one of indifference — the S&P500 rose to a new record high, and Chinese stocks capped the week with their best daily gain since May 2016.
But China cancelled further trade talks over the weekend, and multiple analysts expect the US to raise tariffs to 25% in January if a deal can’t be reached.
If that happens, many US companies that source goods from China will likely have to look elsewhere.
Macquarie’s global economics team ran some numbers to estimate which other countries are best-placed to pick up the slack.
Along with Mexico, other countries that stand to benefit include Vietnam, South Korea, Canada, and Taiwan:
The analysts used a two-step process:
1. Identified 300 product codes (out of 1,300 total) that represent around 95% of US imports from China;
2. For product codes that come from China, reassign them to other trading partners. The process is done pro-rata, based on each country’s current level of exports for those goods.
As an example, the analysts chose product code HS-8517 — electric apparatus for telephone parts.
Currently, China exports $73.48 billion worth of these products to the US annually, accounting for 65.10% of total US imports in this category.
Mexico is in second place with a 10% share. So excluding China, Mexico’s revised pro-rata share of the pie increases to 28.82%.
Here’s what the table looks like for the top HS-8517 exporters:
"We emphasise that these estimates should be taken cautiously and as an illustration given current trade patterns," Macquarie said.
"Actual shifts would likely be far more complex. Nonetheless, we see value in conducting high-level estimates."
Late last month, the US and Mexico reached an agreement on key changes in NAFTA trade negotiations— an important step in reshaping the current deal.
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