Thread by @Brad_Setser

To state the obvious, Mexico is not China.

The shift in auto production for the North American market to the south is real. But Mexico runs an overall trade deficit, and, well, it needs to export autos to pay for all the refined product (gas) it imports from the U.S.

(1/x)

After the global crisis -- and after the oil price shock of 14 -- the Mexican peso has been weak. But Mexico doesn't intervene to keep it weak. It is the natural result of market forces -- and, well, Trump's tariff threats don't help.

(2/x)

And Mexico, unlike China, isn't pursuing an industrial policy implemented through big state banks and big state companies that aims to squeeze American products out of the Mexican market (ok, with the exception of AMLO's desire to refine more crude in Mexico) ...

(3/x)

Mexico hasn't invested $100b plus through a range state backed investment funds to try to displace imported semiconductors from the Mexican market (unlike China)

(4/x)

Mexico doesn't have a state-supported (directly, and indirectly, through export financing) nat'l champion in telecommunications equipment and smart phones that is also trying to displace imported chips from its supply chain (unlike China)

(5/x)

Mexico isn't investing tens of billions to build an indigenous alternative to imported Boeings and Airbuses. and it doesn't have a state monopoly that controls the purchases of its civil airliners that it can use as an industrial policy tool (unlike China)

(6/x)

Mexico, to my knowledge, hasn't directed its public hospitals to buy domestically produced rather than imported medical equipment in an effort to build up its domestic medical equipment industry (unlike China)

(7/x)

Mexico hasn't maintained large state-owned grain and oil seed importing companies that effectively control access to its agricultural feeds market (unlike China)

(8/x)

Mexico -- thanks to NAFTA -- doesn't impose high tariffs on U.S. made cars and trucks, and doesn't have high tariffs on a range of U.S. industrial goods. Again, unlike China, which generally has higher tariffs on manufactures than the U.S. does.

(9/x)

I realize that the stated purpose of the tariffs on Mexico isn't "trade" -- but Trump sometimes blurs lines.

And there just isn't a real case for opening a second trade front against Mexico right now.

(10/x)

Here is a piece I did last year on the changing pattern of trade (US now exporting oil, and Mexico autos) between the US and Mexico -- and for that matter the US and Canada

(11/11)

cfr.org/blog/oil-produ…