Mexico’s tariffs on Asian products can aggravate economic stagnation, affect the exchange rate and even generate unemployment despite the rhetoric of reindustrialization, a result opposite to that sought by the government, Banamex warned.
The economic analysis area of the financial group stated in a report that the barriers in principle seek to protect the national industry by raising the price of imported goods, allowing local producers to gain market share and encourage import substitution.
However, economic theory highlights significant costs such as distortions in the allocation of resources, since tariffs could encourage production in non-competitive sectors, as well as increased costs for activities and industries that depend on imported inputs.
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He argued that tariffs have not strengthened local production. “Empirical evidence on the imposition of tariffs in Mexico, such as the taxes on steel and aluminum in 2018, shows that although they generated tax revenue, they did not strengthen local production in a sustained manner.”
When considering tariffs on agricultural products, it is estimated that they generated ‘negative multiplier effects’ in interconnected sectors, without price convergence or increased local production.
He added that the Mexican Institute for Competitiveness has reported that the tariffs that Mexico imposed on textiles did not reduce imports but, on the contrary, Chinese triangulation grew and further eroded competition in this industry.
He pointed out that given Mexico’s high integration into global chains (foreign trade represents more than 80% of GDP), tariffs could further fragment relocation trends, by contradicting the comparative advantage in low-cost manufacturing.
He recalled that Congress approved the increase in tariffs to 1,463 tariff fractions of the General Import and Export Tax Law.
The barriers will go into effect in January and will affect imports of goods from countries without current trade agreements with Mexico, including China, India, Indonesia, Russia, Malaysia, Thailand, Singapore and Turkey.
The modifications will mainly affect products considered strategic (textiles, clothing, steel, auto parts, plastics and footwear) and would impact 6.4% of Mexico’s total imports.
Financial groups predict that the Mexican economy will slow down this year to 0.39%, according to the most recent monthly survey by Banxico.
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