Chinese products on display in a supermarket in downtown Mexico City, Mexico, July 24. 2024. /CFP
Editor's note:Zhou Mi is a senior research fellow at the Chinese Academy of International Trade and Economic Cooperation, under the Chinese Commerce Ministry. The article reflects the author's opinions, and not necessarily the views of CGTN.
The North American Free Trade Agreement (NAFTA) successfully integrated the trade between the US, Canada and Mexico in 1994. When it was updated to the United States-Mexico-Canada Agreement (USMCA) in 2020. an agreement without the word "free," in the first term of Donald Trump, Canadians and Mexicans collectively breathed a sigh of relief despite having to yield to open more markets.
The three decades since the establishment of NAFTA have shaped the trade network among these three North American countries, with each country finding its own position in the relationship. As Trump had earlier threatened, the US will increase tariffs on imports from Canada and Mexico.
Cost is one decisive factor for American businesses and consumers. US carmakers and other manufacturers choose to invest in Mexico due to cheaper land, labor and environmental costs. The vertical cooperation on industrial chains has created success for the US economy.
The US has previously benefited from low production costs and imports that are free from tariffs. And the investors from the US enjoy the profits too.
When tariffs are imposed, the cost of importing from Mexico will increase even more.
Inflation has been a critical economic and social problem for the US in recent years, causing high living costs and increasing the fragility of American society.
When uncertainties like trade friction, geopolitical tensions or health crises occur, the supply of consumer products and intermediate goods will experience a shortage in the US.
If that happens, the Federal Reserve has to use high interest rates to control consumer demand, which creates more distortion of prices and nervousness in the market.
Every country has its own characteristics and advantages.
It is not likely that the US can gather enough resources to do what Mexico is capable of.
Even if the investors have the willingness to try, lack of human resources and related supporting industries, as well as high compliance costs will make the procedure long and full of challenges.
