China’s Effects on Mexican
Exports
Alejandro M. Werner
October 2004
Index
Mexican exports recent evolution
What explains the behavior of exports?
Sector-level estimation
Subsector-level estimation
Concluding remarks
2
The rapid expansion of Mexican exports to the US following
NAFTA slowed down after 2001. Chinese exports grew fast and
displaced Mexico as the second largest exporter to the US in
2002. Concerns were raised by the breakdown of the Mexico-
US trade linkages.
Non-oil Exports to the US US Total Non-oil Imports Correlation
(billion dollars, monthly) (18-month mobile correlation coefficient)
18 With imports from China With imports from Mexico
0.9
16 Mexico China 0.8
14 0.7
12 0.6
10 0.5
0.4
8
0.3
6
0.2
4 0.1
2 0.0
-0.1
0
Jun-97
Jun-98
Jun-99
Jun-00
Jun-01
Jun-02
Jun-03
Jun-04
Dic-97
Dic-98
Dic-99
Dic-00
Dic-01
Dic-02
Dic-03
Jan-96
Jul-96
Jan-97
Jul-97
Jan-98
Jul-98
Jan-99
Jul-99
Jan-00
Jul-00
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Some observers wondered whether the recent behavior of
Mexican exports were driven by:
The US recession
Increased Chinese competition in the US market
Loss of competitiveness
The last two effects nurtured the impression that the
Mexico-US trade linkages may have weakened, as the
recovery of Mexican exports did not follow the rebound of
US demand promptly.
Index
Mexican exports recent evolution
What explains the behavior of exports?
Sector-level estimation
Subsector-level estimation
Concluding remarks
5
To disentangle the different effects on exports of manufactures, the
analysis considered 3 sectors or types of goods (SITC classification):
Manufactures, Machinery and Transport Equipment, and Miscelaneous
Manufactures. A series of rolling regressions were estimated for each
sector.
X MX EU M EU CH X CH TCR TCR
The variables per sector were (MoM first-differences of logs):
US imports in 2002 dollars (s.a.)
Exports of China to the US in 2002 dollars (s.a.)
US-Mexico bilateral real exchange rate index
A 36-month rolling sample ending in the date reported was used.
The equation allows to identify the contribution of each variable to
the growth of exports.
The error term captured the presence of other factors affecting
exports.
Sector: Manufactures Chinese exports do not have a
significant negative impact on
China´s Exports ( CH )
Mexican exports.
0.20
0.10 Except for some periods, the real
0.00
exchange rate does not have a
significant effect on exports.
-0.10
-0.20 There is a high positive correlation
-0.30 with US imports. The elasticity is
Jun-99
Jul-99
Jun-00
Jul-00
Jun-01
Jul-01
Jun-02
Jul-02
Jun-03
Jul-03
Jun-04
Jul-04
stable and there is no evidence that
it diminished in 2000-2004.
Real Exchange Rate ( RER ) US Imports ( US )
1.5 1.6
1.0 1.4
0.5 1.2
1.0
0.0
0.8
-0.5
0.6
-1.0 0.4
-1.5 0.2
Jun-99
Jul-99
Jun-00
Jul-00
Jun-01
Jul-01
Jun-02
Jul-02
Jun-03
Jul-03
Jun-04
Jul-04
Jun-99
Jul-99
Jun-00
Jul-00
Jun-01
Jul-01
Jun-02
Jul-02
Jun-03
Jul-03
Jun-04
Jul-04
Sector: Manufactures
US imports fully explain Mexican exports’ growth for the period
1998-2000. Chinese exports had, in any case, a minor negative
impact.
In 2000-2003, the fall of US imports accounted for less than half of
the total change in Mexican exports and no negative effect of China
was present.
Accumulated Variation 1998-2000 Accumulated Variation 2000-2003
(Million dollars of 2002) (Million dollars of 2002)
1,330.9 12.3 1,298.1 30 14.3
1,350
-18.9 -20
1,150
-70 -351.7
950
-120 9.7
750
-170 -161.7
550 -220
350 -270
-320
150 -214.0
-26.2
-370
-50
X China M US RER Error Total X China M US RER Error Total
Sector: Machinery and Chinese exports appear to have a
Transport Equipment negative effect on Mexican exports as
China´s Exports ( )
the rolling sample enters 2002. This
CH
negative effect increases steadily and
0.3 stabilizes by the end of the sample.
0.2
0.1 The real exchange rate had a positive
0.0 impact on exports, which is
-0.1 statistically significant for the sample
-0.2 ending in early 2003.
-0.3
-0.4 The elasticity with respect to US
Jun-99
Jul-99
Jun-00
Jul-00
Jun-01
Jul-01
Jun-02
Jul-02
Jun-03
Jul-03
Jun-04
Jul-04
imports is strong and relatively stable,
but starts to diminish in late 2003.
Real Exchange Rate ( RER) US Imports ( US )
2.0 1.4
1.5
1.2
1.0
1.0
0.5
0.8
0.0
0.6
-0.5
0.4
-1.0
0.2
Jun-99
Jul-99
Jun-00
Jul-00
Jun-01
Jul-01
Jun-02
Jul-02
Jun-03
Jul-03
Jun-04
Jul-04
Jun-99
Jul-99
Jun-00
Jul-00
Jun-01
Jul-01
Jun-02
Jul-02
Jun-03
Jul-03
Jun-04
Jul-04
Sector: Machinery and Transport Equipment
In 1998-2000, shifts in US imports accounted for most of the changes in
Mexican exports growth. China and the real exchange rate played a minor
role.
In 2000-2003, Chinese exports displaced a larger amount of Mexican
products. However, most of the reduction is captured by the error term,
which is followed by the negative impact of the fall of US imports.
Accumulated Variation 1998-2000 Accumulated Variation 2000-2003
(Million dollars of 2002) (Million dollars of 2002)
24,800 6,689.9 22,785.1
0
-660.3
19,800
-2,000
16,483.7 533.5
14,800 -217.5
-4,000 -3,165.2
9,800 -6,000
4,800 -8,000
-5,566.5
-171.0
-10,000 -8,858.5
-200
X China M US RER Error Total X China M US RER Error Total
Sector: Other Manufactures This sector displays the most
negative elasticity with respect to
China´s Exports ( CH ) Chinese exports growth. This effect
0.1
0.0
has increased throughout most of the
-0.1 sample.
-0.2
-0.3
-0.4 The real exchange rate does not have
-0.5
-0.6
a significant impact on exports.
-0.7
-0.8 The positive elasticity with respect to
-0.9
US imports is high but experienced
Jun-99
Jul-99
Jun-00
Jul-00
Jun-01
Jul-01
Jun-02
Jul-02
Jun-03
Jul-03
Jun-04
Jul-04
slight a decline in early 2003.
Real Exchange Rate ( RER ) Total US Imports ( US )
2.0
2.0
1.5 1.8
1.0 1.6
0.5 1.4
0.0 1.2
-0.5 1.0
-1.0 0.8
0.6
-1.5
0.4
-2.0
0.2
Jun-99
Jul-99
Jun-00
Jul-00
Jun-01
Jul-01
Jun-02
Jul-02
Jun-03
Jul-03
Jun-04
Jul-04
Jun-99
Jul-99
Jun-00
Jul-00
Jun-01
Jul-01
Jun-02
Jul-02
Jun-03
Jul-03
Jun-04
Jul-04
Sector: Other Manufactures
In 1998-2000, Chinese exports had a minor negative impact on Mexican
exports growth, which is explained almost entirely by growing US imports.
In turn, Chinese exports affected Mexican exports considerably in the
period 2000-2003. This effect was worsened by a reduction of US imports.
Both effects were compensated by positive effects not captured by the
control variables.
Accumulated Variation 1998-2000 Accumulated Variation 2000-2003
(Million dollars of 2002) (Million dollars of 2002)
5,000
0
4,130.7 752.0
4,000 3,686.1 -68.6
-75.2 -200
-245.5
3,000
-400
2,000
-600
1,000
-800 -723.5 -51.2
-123.9
0
-148.3
X China M US RER Error Total -1,000
-1,000 X China M US RER Error Total
Total Variation of Exports of Manufactures
Fast growing US imports of manufactures account for the expansion
of Mexican exports in 1998-2000.
In 2000-2003, the main causes for the low performance of Mexican
exports were US imports and other factors captured by the error.
Accumulated Variation 1998-2000 Accumulated Variation 2000-2003
(Million dollars of 2002) (Million dollars of 2002)
30,000 6,425.5 0
-1,000 -9,278.8
25,000
21,945.2 -2,000 -1,369.5
20,000 -280.5 -3,000
-4,000 594.3
15,000
-5,000
-3,475.1
10,000 -6,000
27,769.1
-7,000
5,000
-8,000
-321.1
0 -9,000
X China M US RER Error Total -10,000 -5,028.5
-5,000 X China M US RER Error Total
The results help to answer two questions:
1. What proportion of the yearly average fall of exports of
manufactures in 2000-2003 is explained by each factor?
2. What proportion of the yearly average change in exports of
manufactures is explained by each factor, if we compare 1998-
2000 and 2000-2003?
Decomposition of the Yearly Average
Decomposition of the Yearly Average
Change in Exports Growth
Fall of Exports 2000-2003
1998-2000 vs. 2000-2003
(Percent)
(Percent)
0 0
-10 -10 -1.7 % -100.0 %
-20 -14.8 -100.0 -20
-30 -30
-40 6.3 -40
-50 -50
-60 -36.9 -60
2.0 % -28.8 %
-70 -70
-80 -80 -71.5 %
-90 -90
-53.4
-100 -100
X China M US RER Error Total
X China M US RER Error Total
Exports Recovery in 2004
In 2004, the negative effects of Chinese expansion continued. However,
the rebound of US imports had a strong positive impact on Mexican
exports.
However, the accumulated effects of Chinese expansion since 2000,
along with other factors that have affected exports growth, have not
been compensated by the recovery observed in 2004.
Accumulated Variation 2004 Accumulated Variation 2000-2004
(Million dollars of 2002) (Million dollars of 2002)
5,000
0
1,419.6
-5,028.1
4,000
-1,000
576.2
3,000 3,701.9 107.1 226.8
-2,000
2,000 -2,369.1
-3,000
1,000 4,250.7 -4,000
-978.0
0 -5,000
-3,462.1
-1,000 -6,000
X China M US RER Error Total X China M US RER Error Total
Index
Mexican exports recent evolution
What explains the behavior of exports?
Sector-level estimation
Subsector-level estimation
Concluding remarks
16
Sub-Sector Level Estimation Summary
China X RER US M
98-00 00-03 04 98-00 00-03 04 98-00 00-03 04
MANUFACTURES:
Leather, Leather Manufactures - - - + + + + +
Rubber Manufactures - - - + + + + +
Cork And Wood Manufactures - + + + + + +
Paper, Paperboard, and related Articles - - - + + + + +
Textile Yarn, Fabrics, Made-up Articles - - - + + + +
Nonmetallic Mineral Manufactures - - - + + + + + +
Iron and Steel - - + + + + + +
Nonferrous Metals - + + + - - + + +
Manufactures Of Metals - - - + + + + + +
MACHINERY AND TRANSPORT EQUIPMENT:
Power Generating Machinery and Equipment - - + + + + + +
Machinery Specialized For Particular Industries - - + + + + + + +
Metalworking Machiner - - + + + + + +
General Industrial Machinery And Equipment - - - + + + + +
Office Machines and Data Processing Machines - - - + + + + + +
Telecomm Sound Recording And Reproducing - - - + + + + +
Electrical Machinery - - - + + + + + +
Road Vehicles - - - + + + +
Transport Equipment - - + + + - -
OTHER MANUFACTURES:
Prefabricated bldgs, plumbing, heat & lighting - - - + + - + + +
Furniture and parts thereof - - - + + + + + +
Travel goods, handbags and similar containers - - - - + + +
Articles of apparel and clothing accessories - - - + + + + +
Footwear - - - + + + + +
Professional, scientific and control instruments - - - + + + + + +
Photographic apparatus, equipment and supplies - - - + + + + + +
Miscellaneous manufactured articles - - - + + + +
●: Close to zero.
Note: Shaded signs are significant at 90%.
Dollar amounts (millions) China X RER US M Others
00-03 04 00-03 04 00-03 04 00-03 04
MANUFACTURES:
Leather, Leather Manufactures -2.1 0.0 0.8 0.0 -12.4 0.0 3.1 -7.2
Rubber Manufactures -12.5 -7.0 -2.3 1.7 -29.7 9.7 86.5 67.5
Cork And Wood Manufactures 2.1 -0.1 -0.5 -0.1 -11.2 4.2 -60.8 13.1
Paper, Paperboard, and related Articles -1.6 0.2 0.6 1.8 1.8 19.8 64.1 16.9
Textile Yarn, Fabrics, Made-up Articles -52.2 -16.7 -4.2 -0.1 -96.0 27.8 68.2 22.9
Nonmetallic Mineral Manufactures -1.7 0.8 -1.1 -0.2 -9.9 33.4 -61.0 45.4
Iron and Steel -10.8 -0.3 -1.3 4.8 -231.1 111.5 236.2 367.0
Nonferrous Metals 9.6 6.1 -8.8 -6.5 -14.2 20.1 -227.2 154.9
Manufactures Of Metals -12.1 -28.1 11.7 0.0 20.5 98.6 7.9 163.3
MACHINERY AND TRANSPORT EQUIPMENT:
Power Generating Machinery and Equipment -45.3 -53.0 -0.9 10.4 -494.1 20.4 458.4 553.6
Machinery Specialized For Particular Industries -10.7 0.6 3.2 0.4 -4.6 4.4 22.7 126.7
Metalworking Machiner -1.2 -0.9 1.8 0.2 1.7 0.1 22.6 11.6
General Industrial Machinery And Equipment -28.5 -10.9 -16.8 36.9 34.6 51.3 364.6 264.2
Office Machines and Data Processing Machines -83.7 -48.3 48.2 -0.5 -204.2 13.5 -1,560.3 -53.1
Telecomm Sound Recording And Reproducing -46.8 -89.3 6.1 0.0 -598.1 -10.2 -2,614.8 1,753.1
Electrical Machinery -33.4 47.3 -27.0 7.8 -1,965.6 74.7 370.4 540.2
Road Vehicles -74.0 -6.3 157.7 4.7 -396.0 -68.7 -1,741.2 -6.1
Transport Equipment -11.2 -0.1 9.7 -0.3 19.2 -0.1 -420.9 -8.7
OTHER MANUFACTURES:
Prefabricated bldgs, plumbing, heat & lighting -96.3 -29.8 2.4 -2.7 132.8 50.0 105.3 11.4
Furniture and parts thereof -125.8 -8.6 1.3 -1.3 69.1 -23.2 800.0 91.8
Travel goods, handbags and similar containers -6.3 -2.4 -0.9 0.0 7.8 5.1 -73.7 -6.6
Articles of apparel and clothing accessories -479.4 -178.1 8.6 -8.5 -81.8 292.0 -1,287.7 -483.2
Footwear -22.3 -33.4 1.2 1.6 14.5 17.2 -84.7 -5.3
Professional, scientific and control instruments -55.2 20.3 -3.9 10.7 64.6 54.8 1,044.2 -123.7
Photographic apparatus, equipment and supplies -0.1 -2.5 -1.5 1.2 -30.4 3.6 -238.8 101.6
Miscellaneous manufactured articles -108.8 -36.6 -16.0 2.0 234.2 92.3 159.0 94.2
Main Results
The largest negative effect of Chinese exports (in dollar terms)
concentrated in the following sectors:
Textiles, office and data processing machines, telecomm
and audio equipment, furniture, apparel, clothing, and
footwear.
The US import slowdown translated into lower exports (in dollar
terms) in the follwing sectors:
Iron and steel, office and data processing machines,
telecomm and audio equipment, electrical machinery, and
road vehicles.
The last four sectors were also affected considerably by other
factors.
These four sectors account for 94% of the reduction in exports
of manufactures in 2000-2003.
Road Vehicles explain a large fraction of the exports fall in
2000-2003. This fall was caused by lower US imports and other
factors. One of these factors was a shift in US demand away
from GM, Ford, Chrysler vehicles. The majority of Mexican car
exports are mainly from such brands.
Cars and Light Trucks Sold in the US US Market Share
(Millions of units) (Percent, GM and Ford on the left axis)
18.0 24
17.8
23
17.8
22
17.6 17.5 21
20
17.4
19
17.4
17.2 17.1 18
General Motors 17
17.0 17.0 16
Ford
DaimierChrysler 15
16.8
14
16.6 27 13
1999 2000 2001 2002 2003 1999 2000 2001 2002 2003
Index
Mexican exports recent evolution
What explains the behavior of exports?
Sector-level estimation
Subsector-level estimation
Concluding remarks
21
In 2004, manufacturing and maquila exports have reflected
mainly the recovery of US imports. Also, imports of intermediate
goods anticipate future growth of industrial activity.
Exports Imports
(SA data) (SA data)
13.8
intermediate (billions of dlls) .
13.0
manuf. exp. (billions of dlls) .
7.6
maq. exp. (billions of dlls) .
6.0
maquila (billions of dlls) .
Manufacturing Intermediate
13.4 7.4 12.5
Exports Goods 5.8
13.0 Maquila 7.2 12.0 Maquila 5.6
Exports
12.6 7.0 5.4
11.5
6.8 5.2
12.2 11.0
6.6 5.0
11.8 10.5 4.8
6.4
10.0 4.6
11.4 6.2
A-02
A-03
A-04
O-02
O-03
J-02
J-02
J-03
J-03
J-04
J-04
A-02
A-03
A-04
O-02
O-03
J-02
J-02
J-03
J-03
J-04
J-04
Source: INEGI 22
Source: INEGI
The recovery of the manufacturing sector complements the
dynamism of other industrial and non-industrial activities. In
2004.II, GDP grew 3.9% in real annual terms and 1.2% over the
previous quarter.
Mexico: GDP
GDP Growth by Sectors (Real annual % change)
Annual 9.6 Manufacturing GDP
(%) Non Manufacturing GDP
Q1.2004 Q2.2004
5.8
GDP 3.7 3.9
Agriculture 4.6 5.1
Industrial 3.2 3.8 2.0
Mining 6.4 2.4
Manufacturing 2.8 4.0 -1.8
Construction 4.9 4.4
Elec., gas & water 1.4 0.8 -5.6
Services 4.1 4.1 I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II
Source: INEGI 1999 2000 2001 2002 2003 2004
Source: INEGI. 23
Final Remarks
Lower exports in 2000-2003 are explained by the fall in US
imports and other factors not captured by the analysis.
Among these, there may be shifts in demand for Mexican
products and competitiveness losses in some sectors.
The negative effects of lower US imports and other factors
concentrated in four sectors (office and data processing
machines, telecomm and audio equipment, electrical
machinery, and road vehicles). These sectors account for 94%
of the fall of exports in 2000-2003.
Chinese exports had a second-order effect. However,
increased competition from China has become a permanent
and growing challenge for Mexican exports.
China’s Effects on Mexican
Exports
Alejandro M. Werner
October 2004