Mexico to begin reaping rewards from US-China trade war

 In Newsletter

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

Mexico Gross Fixed Capital Formation forecast through January 2020

This chart was generated using CI Futures. Book a demo to see it in action.

 

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

Mexico/China Total Foreign Trade forecast through January 2020

This chart was generated using CI Futures. Book a demo to see it in action.

 

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

USD/MXN Exchange Rate forecast through January 2020

This chart was generated using CI Futures. Book a demo to see it in action.

 

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