International Economics: IB Economics

I'm not sure I approve of the tone of this article: why is Mexico a 'backdoor' to Chinese firms manufacturing furniture in Mexico? Isn't Chinese FDI into Mexico providing jobs, training, import revenues and taxes to Mexico?

I can only assume that US FDI allowing US-owned firms to manufacture overseas are going to be portrayed as a backdoor too. Imagine how many backdoors the US has into the EU - it's scarcely worth bothering with the front door. 

And if it provides US citizens with greater choice, and cheaper furniture then the only people that seem to lose out are US furniture manufacturers - of whom there are far fewer than there were - and the people who work for them.

So rather than portray the Chinese investment in Mexico as malign, why doesn't the BBC celebrate the fact that it shows the dynamism, and potential gains from trade.

This Wendover Productions clip looks at how the US-China trade war started to change US trade patterns, and how the coronavirus and its effect upon global supply chains, and lately the Ukraine war have all contributed to the US substituting in favour of Mexican goods and away from Chinese goods. 

As a result, Mexican manufacturing has benefitted, and China is no longer as appealing not least because China is no longer the low cost manufacturer that it once was. And who is best placed to step into the breach. Mexico? 

Just maybe, given that they've just done their Mock Examinations, my Year 13 pupils might be predisposed to revisiting why Foreign Direct Investment like this is so vital to countries like Mexico.

On the demand-side, it represents an injection into the circular flow of income, and might allow some people to break free of the poverty trap. On the supply-side, not only does it increase the Mexican economy's productive capacity,  but it might also facilitate the transfer of technology in a high-tech sector. Of course, there's an evaluative angle to both these aspects - to what extent will any factor incomes remain in Mexico, and is it the appropriate technology for Mexico, for example. 

But it's just a rich source of a real world example of why FDI is so powerful. 

The US and Mexico have reached a deal to stave off the threat of the US imposing tariffs on Mexican imports, with the Mexicans promising to take "substantial steps" to tackle illegal migration.

Whilst this is clearly a good thing, the fact that policymaking is so hazy on the detail isn't good for having certainty about what's involved, or the likelihood of the deal being sustainable.

At least the Mexicans appear to have grasped the distributional effects of tariffs, even if their neighbours haven't.

This BBC article is a really unusual look at one of the world's ongoing issues - the US-Mexico border. It highlights the fact that recent initiatives by the Mexican government have created a free trade zone close to the border, with lower taxes - both on incomes and sales, and lower petrol prices, designed to match those in the US.

The hope is that it incentivises Mexicans to stay in their home country and also encourages US firms to invest in Mexico, creating jobs and boosting the local economy. If it works, it looks likely to reduce any need for a wall - which, given that there's been a reduction in migration to the US anyway, looks like the sort of thing that only a 'very stable, genius' of a property developer might suggest... 

To copy Trumpian rhetoric, this is probably the 'best tweet ever' - and highlights the signing of the US-Mexican-Canadian trade deal and replace NAFTA. 

However, contrary to the President's hyperbole, some people think that the changes are little more than cosmetic, although there are aspects of the deal such as a minimum wage level for car part workers, aimed at shifting low-paid car manufacturing jobs out of Mexico. 

Mexico retaliates: easy to win, apparently.

The Guardian on the prospect of a trade war between seeming allies - proof that the President appears to be keeping his friends close and his enemies even closer. 

Or that he does what he's told by President Putin.

This IMF clip looks at remittances, and their impact on developing economies. It acknowledges the greater ease of transferring resources, and the importance of this income in boosting growth and reducing poverty in developing economies. 

It's interesting to note the size of remittances around the world: Mexico's remittances are worth more than its oil exports, Sri Lanka's are more than its tea trade, and Egypt's are more than its income from the Suez Canal. Indeed in 2022, remittances were worth more than FDI and foreign aid combined.

This Insider Business clip looks at the trade-off between economic growth and Mexico's infrastructure and culture. The government is committed to developing a new train line on the Yucatán Peninsula, connecting tourist resorts with famous Maya sites.

But what is the environmental and cultural cost? And to what extent is the building of the trainline justified? 

The new NAFTA-style trade deal between the US, Canada and Mexico has been ratified, with President Trump declaring it the 'greatest deal ever' - perhaps - and everyone else wondering what has changed.

Either way, it's designed to increased inter-regional trade, by reducing trade barriers.

Whose for another trade war?

It seems that President Trump is keen - with tariffs on Mexican goods likely to be introduced on Monday, after disappointing trade talks yesterday. I wonder if the President has any examples of a 'good' trade war to refer to?

US trade policy is changing again - it is believed that the Americans are going to lift tariffs on Canadian and Mexican steel as is seeks a new North American trade agreement. This is all well and good. But one wonders why that had to impose tariffs in the first place - and who gained from their introduction.

A useful summary from the BBC - who gets what from the 'new NAFTA'.

I have to say it strikes me that this is the greatest trade deal 'ever'.

Has the tide turned back in favour of free trade, with news that the US and Mexico have signed a trade deal, or is this a false dawn?

Either way, it seems that there's one feature of the Trump presidency that is consistent. It's inconsistency.

Here comes a trade war: this BBC article details how Canada, the EU and Mexico are retaliating against US tariffs on steel and aluminium.

It makes for interesting reading, highlighting the intersection between economics and politics, but at its core is something far simpler. How to respond to a playground bully.

Once again, President Trump's copy of "How to Win Friends and Influence People" remains unthumbed. The US is introducing tariffs on the steel and aluminium of its allies - the EU, Canada and Mexico. 

They have vowed to retaliate. Good news all round!