Mexico to begin reaping rewards from US-China trade war

Issue No. 107

Assets covered: USD/MXN
Countries covered: Mexico, US, China

 

Complete Intelligence CEO Tony Nash discussed in an interview Monday how Mexico is well-positioned to benefit from the US-China trade war and the emerging era of trade regionalization. Below we go into a little more detail.

 

Our latest forecasts show that capital investments in Mexico should post a small increase next year after falling for three years in a row. With its proximity to the US and a large and educated workforce, the country is a natural option for manufacturing investment, especially if a new North American trade deal is ratified in the US (discussed previously here).

 

The US-China trade war winds are currently blowing slightly favorable, but even if there is an incremental agreement, over the long-term, Mexico should still be a winner as companies reconsider China investments in light of the risks.

Mexico Gross Fixed Capital Formation forecast through January 2020

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China’s overall trade dwarfs Mexico’s (chart below), the trends are clearly in the latter’s favor. We forecast Mexico’s total foreign trade will grow 8 percent this year, compared to only about 2 percent for China (table below). The trend should continue in 2020.

Mexico/China Total Foreign Trade forecast through January 2020

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We also see a period of stability for the Mexican peso into early next year, after several years of weakening, a positive sign for investors.

USD/MXN Exchange Rate forecast through January 2020

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As global trade retrenches into regionalized trade, Mexico should see strong interest from companies selling into the US market.