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Mexico Discusses US Trade Deficits Ahead Of NAFTA Review

by Mike Godfrey,, Washington

12 May 2017

The Mexican Government has responded to the United States' request for comments on its investigation into trade deals wherein the US runs significant trade deficits.

In its response, the Government argued that tariff rates are unlikely to be the reason behind the US running a "moderate" trade deficit under the North America Free Trade Agreement with Mexico and Canada. He cited a recent article from the Peterson Institute for International Economics which said "tariffs and trade barriers have little or no correlation with trade deficits." It noted fiscal deficits and currency manipulation (to depreciate foreign currencies) have a strong and positive correlation with trade deficits.

Nevertheless, the Mexican Government said that, under NAFTA, US exporters have gained significant tariff preferences. "Without NAFTA," the Mexican Government said, "the average tariff on Mexican exports to the United States under the Most Favored Nation (MFN) treatment would be 3.5 percent, whereas the average tariff on US exports to Mexico would be 7.1 percent. Moreover, Mexico's bound rates under the WTO average 36.2 percent, well above its applied MFN tariffs; while US bound rates average 3.5 percent, virtually the same as its applied MFN tariffs. Therefore, NAFTA not only provides certainty to US exporters regarding applied tariffs, it also protects them from much larger potential tariff increases in Mexico."

Concluding, the Government said NAFTA has fostered a symbiotic relationship, with Mexico enabling the US manufacturing industry, rather than substituting it. It cited the automotive, electronics, agriculture, and energy industries as examples of where Mexico and the United States have developed mutually beneficial supply chains that have boosted both countries' competitiveness.

TAGS: energy | tariffs | Mexico | manufacturing | United States | trade | North America | Economy

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