China is now Mexico’s third-largest export partner, receiving $5 billion in goods in 2016. | AP Photo Mexico gets closer to China as NAFTA talks fray U.S. relationship

MEXICO CITY — While American, Mexican and Canadian negotiators sat in the Mexican capital this weekend trying to discuss NAFTA, Mexico's top trade official was 500 miles away in the city of Monterrey — celebrating the country's growing trade relationship with China.

As the Mexico-U.S. relationship frays during tough NAFTA talks, Mexico is strengthening ties elsewhere. And as tensions rise over reopening the two-decade-old trade pact, no country stands to benefit more than China.


That's why Ildefonso Guajardo, Mexico's economy secretary, headed to Monterrey on Friday, the first official day of the NAFTA negotiations, to celebrate the growing Mexico-China relationship with business executives from both countries. It was an overt sign of the renewed ties that could give China a bigger foothold in Latin American trade and investment.

Guajardo underscored the need to “pay attention” to China, its second-largest trading partner, during the fifth annual reunion of Grupo de Alto Nivel Empresarial México-China, a partnership between more than 25 Mexican and Chinese companies — including Chinese tech company Huawei and Mexican airline Aeroméxico. Mexican President Enrique Peña Nieto and Chinese President Xi Jinping founded the group to promote more business cooperation between the two countries.

“In this process of strengthening [the Mexico-China relationship], this group, without a doubt, has given us a vision on how to continue forward at a time when protectionist messages” are beginning to be part of the world’s vision, Guajardo said at the event, according to Mexico’s business newspaper, El Economista.

Members of the Mexican government and private sector emphasized room for development in infrastructure, energy, automobiles and finance, El Economista reported. The group’s Mexican president, Juan González Moreno, said that after two days of meetings, the business leaders agreed to foster cooperation between financial services and energy companies.

While Peña Nieto’s efforts to diversify trade and investment partnerships predate the election of President Donald Trump and the NAFTA renegotiation, Mexico and Asia policy experts agree that there is a growing momentum for a stronger Mexico-China relationship.

“China is really the unspoken fourth partner in NAFTA,” said Enrique Dussel Peters, a Mexican economist and head of the Center for China-Mexico Studies. “China has benefited the most. As Trump talks about Mexico robbing U.S. jobs, he’s really looking at the wrong country — not the right beneficiary.”

Long seen as competitors for exporting manufacturing goods, Mexico and China have historically avoided deep economic or trade ties. At the same time, Mexico has racked up more than 50 trade agreements with partners around the world, including joining the Trans-Pacific Partnership, and China has expanded investment and trade ties with other big Latin American economies such as Brazil and Chile.

Slowly, however, both countries have shifted closer.

China is now Mexico’s third-largest export partner, receiving $5 billion in goods in 2016. Mexico also imports almost 20 percent — roughly $70 billion — of its goods from China. China is Mexico’s second-largest import partner, according to the World Integrated Trade Solution. Still, U.S. trade with Mexico is upward of $600 billion, overshadowing any other country, and the U.S. absorbs 80 percent of Mexican exports; almost half of Mexico’s imports come from the U.S.

“I don’t think it’s Mexico’s first option, but if it’s being pushed into a corner, China is looking more interesting and more attractive,” said Antonio Ortiz-Mena, former head of economic affairs at the Embassy of Mexico and current senior vice president of Albright Stonebridge Group.

In September, Peña Nieto visited China as one of Xi’s guests — alongside the leaders of Egypt, Kenya, Tajikistan and Thailand.

And during that same trip, Peña Nieto inked a deal with Alibaba Group, the Chinese e-commerce company that’s worth more than $500 billion. The memorandum of understanding between Mexico’s economy ministry and Alibaba aims to get more Mexican products on Alibaba platforms, while also helping small- and medium-sized enterprises export beyond Mexico and into China by helping with logistics, analytics and electronic payments. More than 200,000 Mexican companies are now listed on the Alibaba platform, according to ProMéxico, the Mexican government’s trust fund to promote trade and investment.

This is no small feat, experts say, as upward of 99 percent of Mexican enterprises are small and medium-sized. More than half of Mexico’s GDP comes from these enterprises, according to 2014 figures from Mexico’s National Institute of Statistics and Geography.

“By partnering with Alibaba, we can expand Mexico’s export options in China and in Asia more broadly, while enhancing Mexican SMEs’ knowledge of e-commerce and cross-border trade,” Peña-Nieto said at the signing ceremony.

Ortiz-Mena, who advised Mexico in the original NAFTA negotiation, noted how rare it is that Peña-Nieto was present at the signing of the deal, rather than just the Mexican economy or foreign affairs ministers. His appearance underscored the government’s commitment to expanding trade opportunities, he said.

Other deals include a March joint venture between Mexican billionaire Carlos Slim’s Giant Motors and China’s JAC Motors. JAC is investing more than $200 million for both companies to work together in Mexico to manufacture cars specifically for Latin American markets. The U.S. will not see these exports.

A future free trade agreement between the countries is also possible, as both Peña Nieto and Xi mentioned it during the September visit, said Margaret Myers, director of the Latin America and the World Program at Inter-American Dialogue. Mexico has 10 FTAs with 45 countries, 32 reciprocal investment promotion and protection agreements with 33 countries and nine other trade agreements within Latin America, according to ProMéxico.

However, Ortiz-Mena and other Mexican policy experts agree that regardless of the future of NAFTA or Mexico’s 2018 presidential elections, Mexico will have to better build out its infrastructure — notably in transportation and telecommunications — if it seeks to diversify its trade partnerships and court foreign investment.

Even with deals with companies like Alibaba and JAC Motors, Dussel Peters said the prospects of a close Mexico-China relationship are still “primitive” and have a long way to go, as Mexico does not have the strategy in place to enact a large-scale trade expansion with China. Both Dussel Peters and Myers emphasized that given the historic competitiveness between the two countries, there are still challenges and tensions to overcome.

“There’s certainly a growing footprint. We’re seeing some interesting gestures,” Myers said. “But the real question is whether Mexico is prepared to strengthen those ties with China. How that materializes is questionable.”