02 JUL

2019

Macro , Topics

Mexico: economy highly dependent on the United States

The US president’s threat, a few weeks back, to impose, as of 10 June, a 5% customs tariff on all Mexican imports (increasing incrementally each month to 25% by 1 October), exposed Mexican vulnerability. Over the years, the country has grown increasingly reliant on its US neighbour: almost 80% of its exports go to the US alone and, given its opening rate, these exports account for nigh on 30% of its GDP (graph 2). Mexico, along with Vietnam, are by far the countries most exposed to a US customs tariff hike: the MVA (manufacturing value added) that meets the US FD (final demand) accounts for more than 5% of its GDP (graph 3).

That makes the quite negative impact of any eventual tariff hike on the country’s growth all the more understandable. The waning GDP growth would almost certainly drive Mexico into recession (graph 1). Mexico’s president, Andrés Manuel Lopez Obrador, soon realised that he would have to try to defuse the situation by sending 6 000 of his National Guardsmen to the southern border to stem the flow of refugees from Central and South America. The agreement reached with the United States does not, however, definitively remove the customs tariff threat. If migration figures do not decline sufficiently, then – and Donald Trump has made no bones about this – push could come to shove …