#TradeTuesday: Mexico 2.0 and CPTPP, Brexit wins?
By Harry Brown
Following changes to the machinery of government to help the UK start seeing “Brexit wins”, new Business and Trade Secretary, Kemi Badenoch MP, visited Mexico earlier this month, where she met with Mexican Finance Minister, Rogelio Ramirez de la O.
For context, negotiations were officially launched with Mexico for a new trade deal in May 2022, following the roll-over of existing terms as an EU member. Dubbed Mexico 2.0, the UK is looking to strike a deal that would boost financial services and the £1.9bn worth of services trade that the UK already does with Mexico.
After Badenoch’s decision to jet out to North America, we look at the current state of play surrounding UK-Mexico trade and whether, as one of the world's largest countries in terms of population, Mexico is a nation the UK should seek to build a stronger relationship with.
Currently, Mexico is the UK's 47th largest trading partner. In the last year, total UK exports to Mexico amounted to £2.3bn, whilst imports were £2.2bn (an increase of 19.1% or £726m compared to 2021). However, this figure is significantly lower in contrast to economies of a similar scale to the UK. 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 15th largest economy globally and has a population of over 120m. In 2017 PWC predicted that the Mexican economy would be the 7th largest in the world by 2050, with a population exceeding 150m. Additionally, the OECD estimated the Mexican government procurement market to be worth $120bn, a large market 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 production, 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). Badenoch confirmed that the purpose of her trip was two-fold, saying, “Mexico is a top 20 global economy and a core member of the exciting trans-pacific trade bloc. I’m here to push progress on two significant post-Brexit wins that will not only benefit British businesses, but also show what the UK has to offer CPTPP countries.”
The CPTPP includes nations such as Canada, Japan and Mexico, and other countries across the pacific. Accession to the bloc gives the UK access to a £9 trillion spread across eleven markets and has been talked up as opening a new horizon of opportunities for British businesses, particularly for the financial services and digital sectors. Should the UK join, it would add £2 trillion to the bloc’s GDP, taking it up to 15% of the world’s GDP.
Ultimately, the UK Government will be hoping to secure a deal that allows trade between the UK and Mexico to flourish. The pharmaceutical, beverages and manufacturing industries stand best-positioned to benefit when a new and improved deal is struck. 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 Brexit wins this government is so keen to achieve, may become a reality sooner rather than later.