Trade Tuesday - Cinco De Mayo: A closer look at Mexican-UK trade

By Harry Brown

To mark Cinco De Mayo this Thursday, we look at the current state of play surrounding UK-Mexico trade and whether, as one of the world's largest countries, Mexico is a nation the UK should seek to build a stronger relationship with since its departure from the EU.

Currently, Mexico is the UK's 43^rd largest trading partner. Trade between the two countries is presently operating on an agreement signed in the summer of 2020 and secured tariff-free exports for 88% of UK exports to Mexico. That deal, however, is essentially a rollover of the existing agreement that Mexico has with the EU. Given that both nations will shortly begin a renegotiation of that deal, is the UK missing a trick by not having a closer trade relationship with Mexico?

For context, in the last year, total UK exports to Mexico amounted to £2bn whilst the imports were £2.1bn, an increase of 12.4% or £229m compared to 2020. However, contrast that to economies of a similar scale to the UK's, this figure is significantly lower. For example, powerful economies in Asia, such as Japan and Korea, send $17bn in exports each year to the north American nation.

Is this an opportunity being missed by the UK? Mexico is currently the 15^th largest economy globally and home to over 130m consumers. In 2017 PWC predicted that the Mexican economy would be the 7^th largest in the world by 2050. Additionally, the OECD estimated the Mexican government procurement market to be worth $120bn, a large sum that many British businesses could benefit from.

There is also a gap in the market for a closer relationship with a European country. Nearly half (46.3%) of Mexico's total imports by value in 2020 were purchased from the United States and Canada. Trade partners in Asia accounted for 38.6% of Mexican import purchases, while 11.6% originated from Europe. Naturally, there has to be a demand for British exports to increase to Mexico, but a closer look at the details reveals there is scope.

Mexico’s current top five imported items are electrical machinery (21% / $82bn), tech machinery (17% / $66bn), vehicles (8.4% / $32bn), minerals (6.6% / $25bn) and medical equipment (4.1% ‘/ $15bn). Right at the top of the UK's industrial output is mechanical machinery, closely followed by vehicles and pharmaceutical products. Whilst the UK lags behind nations such as Japan, Korea and Germany, in terms of output, these should be areas that the UK looks to make a stronghold in a post-Brexit world.

Additionally, forging a stronger relationship with Mexico will also support the UK's ambition to join the Trans-Pacific Partnership (CPTPP). In a speech last week, Trade Secretary Anne-Marie Trevelyan confirmed that the UK is on course to take up membership shortly. The group includes Mexico and other nations across the pacific and gives the UK access to an £8 trillion spread across eleven markets and has been talked up as opening a new horizon of opportunities for British businesses, particularly for the services, digital and provisions sectors.

Ultimately as Mexico is set to celebrate Cinco De Mayo this Thursday, the UK Government will be hoping to secure a deal that allows trade between the UK and Mexico to flourish. It is countries of the calibre, size and resource of Mexico for whom Brexit presents the most lucrative opportunities, and if the UK Government can strike a purposeful new deal, perhaps the UK will be celebrating as well.