The Effect of China on Mexico-U.S. Trade: Undoing NAFTA?

Abstract

Abstract Chinese trade flows have increased uninterruptedly in the last two decades as a consequence of China’s “open door” and economic liberalization policies undertaken since the late 1970s. This surge of Chinese exports has raised concerns among many developing countries competing with China in the same sectors/products. In this paper we focus on the competitive effects of China on Mexico’s exports to its most important market, the United States. Although China has long enjoyed larger export shares in products such as footwear, toys, lamps and lighting fittings, and luggage, recently it has also surpassed Mexico in exports in other sectors such as computer hardware. Despite the privileged tariff status set by NAFTA, Mexico seems to be loosing U.S. market share to China. Using detailed export data at the product line (HS-8) we assess to which extent China’s increased exports can explain the trends observed in Mexican exports to the United States. We exploit the variation of NAFTA preferences at the product level as shifters of the elasticity of Mexican exports to U.S. total imports. While NAFTA did favor Mexican exports to the U.S., these seem to have been negatively affected by Chinese exports in the last years.

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