The Dragon Menace: Is China Displacing Mexico´s trade with the United States?

Resumen

The most common statistic used in order to prove China’s negative impact on Mexico’s trade with the US is the share of US imports precedent from Mexico exporters. This approach suggests that China’s expansion in the US market negatively correlates with the growth of the Mexican exports. However, and contrary to conventional wisdom and the ad-hoc shift share approach, our analysis suggest that: 1) even when China displacement effect is not minor, the China expansion in the US market explains at the most one third of the decline in the rate of growth of the Mexican exports to that nation; 2) contradicting the shift share approach that target almost half of the Mexican sectors under the China threat, we localized that almost all the displacement (95 percent) occurred in two sectors, textiles and machinery; and 3) two thirds of the employment losses in the textile industry are explained by long run factors, such as technology, and just one third is due to China’s growth in the US market. Moreover, we suggest that the potential for economic gains for Mexico, due to China’s economic growth, can offset short-term negative shocks.