Supply Chain Research

The Mexican government has started a process of consultation with big business to determine a negotiating stance, MarketWatch reports. It is not implausible that Mexico may actually call for the start of NAFTA talks from May. President Peña Nieto and Prime Minister Trudeau already held talks on January 31 to discuss strategy according to Reuters. Perhaps unsurprisingly President Trump has said he wants to speed up talks.

So, where are each country’s potential pain points in negotiations?

Panjiva’s analysis of the top 50 export lines for each country (using U.S. export and import data and Mexican export data for the 12 months to November 30) indicates the following areas:

The automotive industry (HS chapter 87) forms an important part of the export picture for all three countries – in some ways it is the heart of NAFTA. Structurally the U.S. exports parts to Mexico and Canada, who in return send back assembled vehicles. This has already been a central part of President Trump’s trade narrative, as discussed in Panjiva research of January 24.

There also is a tightly integrated supply chain for  electrical equipment (HS 8537) for both household- and utility-scale applications. This matters more on balance for Mexico than the U.S. or Canada. In many regards Mexico can be seen to be the workshop of NAFTA across the board.

Computer systems (HS 8471) are structured similarly to autos, with U.S. components heading to Mexico for assembly, although there are also completed systems exported from the U.S. to both Canada and Mexico. Canada is largely uninvolved.

Among primary industries there is a southward flow of energy (HS 27) from Canada to the U.S., particularly crude oil, and from the U.S. to Mexico in the form of refined products. Canada is generally much more exposed to primary industries than Mexico, particularly in chemicals (HS 39) and steel (HS 73).

At the other end of the spectrum, the U.S. has a particularly high exposure to higher tech products, and in particular electronic circuits (HS 8542) as part of the PC supply chain already referred to as well as aerospace (HS 8800).

The grid below can be seen in higher resolution by clicking the graphic – note red indicates a high proportion of total trade, green lower and blank are not in the top 50. Categories in the top 50 are typically over 0.25% of total exports for the country.

Chart is based on top 50 exports by HS code, for the 12 months to November 30, for the U.S., Canada and Mexico based on U.S. and Mexico data. HS category shown if it is present in at least one country’s top 50 exports (typically >0.25% of all exports). Red represents highest proportion of total exports, green the lowest while blank cells indicate no position in the top 50. Click the chart to see a high resolution version. A simple directory of HS codes can be found here. Source: Panjiva