Global trade is shifting, not reversing: WSJ
3 Min Read
In light of the China-US trade dispute, Mexico finds a way up.
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Global merchandise trade. Source: Bukit Merah, Singapore. Unsplash/CHUTTERSNAP.
The Wall Street Journal (WSJ) wrote on Sunday that deglobalization is constantly reshuffling trade flows, which creates new geopolitical winners—"if they are astute enough to seize the opportunity."
Global trade took some big knocks in 2022, according to WSJ, adding that Russia’s commodity flows to Europe shrunk to a trickle and lockdowns in China disrupted supply chains.
The Biden administration provided massive subsidies for the manufacture of semiconductors and electric-vehicle batteries in the United States, the daily wrote, both of which are now dominated by Asia.
According to WSJ, former President Donald Trump unleashed a previous wave of talks about deglobalization in 2018 with his tariffs on Chinese products, that said, US imports boosted from Southeast Asian nations such as Vietnam, Indonesia, and Thailand at China’s expense, rather than reducing imports overall.
On the other hand, the war in Ukraine has redrawn the global energy map, redirecting Russian energy exports to China and India and increasing European imports from the United States and the Middle East without increasing Europe's self-sufficiency, according to WSJ.
Read next: China-Russian cooperation worth $160bln, to fortify bilateral ties: FM
The outlet adds that the region wants to change this by building renewables, but this is a long-term strategy that will increase imports of non-energy commodities like copper, emphasizing that wind-farm projects are currently held up by snarled global supply chains as well as local permitting bottlenecks.
It stands to reason that globalization cannot be easily reversed. Since the pandemic, the return of inflation has served as a reminder that consumers do not readily accept the cost of increased trade frictions.
Subsidies can help in a few politically sensitive industries, such as microchips and batteries. Even so, new trade routes will emerge, or existing ones will expand to replace those under threat. For example, new battery plants in the United States will require massive amounts of input from mining hubs such as Australia, Chile, and Canada, according to WSJ.
Read next: US, UK agree on boosting energy security to lessen Russian reliance
Rise of Mexico
Mexico has lower wages than China, a well-established manufacturing sector anchored by the automotive industry, and an ideal geographic location for serving the US market, according to the WSJ.
The paper adds that Bank of America analysts see some evidence of this happening, with US imports of Mexican manufactured goods roughly 60% higher in October than before the pandemic. Mexico increased its share of low-tech industrial imports from the United States, while China has decreased its share.
The idea behind the rationale is that countries looking to replace China in supplying the US may need to invest a lot.
Mexico's dispute with the United States and Canada over its energy policy, which companies north of the border believe is a disadvantage to them, highlights the risk that it will miss out on today's "nearshoring" opportunity, according to WSJ.
Potential Mexico-US trade raises questions about how US-Mexican relations will be shaped in the future.
