Global exports of intermediate goods (IG), inputs used to produce a final product, increased by 21 percent during 4Q21, continuing the upward trend observed throughout the year. While Mexico’s reduction of tariffs could encourage more exports, its open economy will make it difficult for the country to insulate itself from global inflationary pressures.
North American IG exports grew 14.5 percent year over year in the last quarter of 2021, primarily because of US exports of soybeans to China, particularly for animal feed. Mexico is closely linked to the US and China for its supply of manufacturing inputs, “which accounted respectively for 41 percent and 20 percent of Mexico’s total IG imports in 4Q21. Mexico’s imports from the US reached US$31 billion in 4Q21, with corn as the top imported input,” according to the WTO’s report. Mexico takes ninth place among the top IG importers, with the top being China, the US and Germany.
Other industrial supplies such as metal structures, electrical conductors and medical and pharma products, grew by 31 percent year over year. Exports of primary and processed food and beverages increased slightly less during the quarter, for a total of 23 percent. “World exports of inputs for transport equipment remained just above their 2020 level, with a year over year increase of 2 percent in 4Q21. Compared to the previous quarter, however, the sector’s exports grew by 7 percent,” reads the WTO report.
To fight rapidly rising inflation levels, governments worldwide have implemented subsidies to counteract the negative effects in the short and long term. Mexico, for example, introduced tariff reductions for various food products, including poultry meat (which has a tariff of 75 percent), lemons, oranges, apples and corn (20 percent), carrots and milk (10 percent), among other products. The effect of these tariffs on inflation is yet to be determined but they might also affect producers and consumers. “Recognizing the limited effect that temporary trade liberalization measures will have on inflation, we must recognize that this is a wise action, which I think should become permanent after a gradual transition period that allows producers to adapt. In its temporary version, liberalization is a good measure with regard to the products that are mostly imported and for which it will have an effect of lowering prices,” according to a report by BBVA Research.