Flu-conomics: Mexico - US Trade Dynamics

A large part of the world's population could be affected by the COVID-19 pandemic, which has already infected nearly 170,000 people in 148 countries and caused more than 6,500 deaths. According to various estimates by the World Health Organization, the proportion of the world's population that could be infected ranges from 40 to 70 percent.

The US is the most-affected country in the Americas with 44,135 confirmed cases and 542 deaths, out of the 52,584 confirmed cases and 669 reported deaths in the region. Mexico has 405 confirmed cases and 5 deaths, while Canada has reported 1,646 confirmed cases and 24 deaths. This means that the US accounts for approximately 83.9 percent of confirmed cases and 81 percent of total deaths in the region, while Mexico accounts for only 0.8 percent of confirmed cases and 0.7 percent of total deaths.

However, beyond numbers, the impact of COVID-19 on the economy and the labor market, investment, the supply of goods and services and consumption has begun to cause problems in the Americas. According to the International Labor Organization (ILO), the COVID-19 pandemic will lead to a significant increase in unemployment and underemployment. In the hypothetical cases created by ILO, global unemployment would increase by 5.3 million in the "most favorable" case and by 24.7 million in the "worst-case" scenario.

In Mexico, it is too early to estimate the economic and labor impacts of COVID-19. The US is in a more advanced stage, however, and S&P Global Ratings reports that the decline in the country’s GDP in 2Q20 will be of 12 percent. However, the labor market in the US appears to be a bit safer. The US Department of Labor announced that employers had increased payrolls by 273,000 jobs in February and had created 85,000 new jobs, helping the unemployment rate to go down to 3.5 percent. These measures helped the US mitigate the impact of COVID-19 on its labor market.

Although a crisis nonetheless, the COVID-19 pandemic has also brought opportunities to Mexico. At the beginning of the year, during the trade war between the US and China, Mexico benefited from an increase in its exports to the US. It seems the COVID-19 crisis will maintain momentum. According to US authorities, exports from China to the US fell 20 percent on a year-on-year basis in January 2020 with an overall reduction of US$33 million. This means that the share of imports from China to the US went from 20.3 percent in January 2019 to 16.9 percent in January 2020. This has led to increased Mexican exports to the US. The latter country announced today that it had demanded more than 1.65 million metric tons of sugar from Mexico for the September-October 2020 cycle, compared to the 900,000 and 1 million metric tons demanded in previous cycles. 

Mexico is the world's leading exporter of medical devices and it has the US as its main export destination, according to the Mexican Association of Innovative Medical Device Industries (AMID). The country has reported an increase in its exports stemming from the demand for consumables and devices for COVID-19 pandemics in the US and other countries.

Now that the US government is looking to implement economic relief packages to maintain its employability rate, the real question is how quickly activity restrictions are going to be lifted and whether the economy can jump back to keep its position as the world's top economic power. As far as Mexico is concerned, the question is how the federal and state governments will mitigate the impact on the economy and employability, in addition to continuing to take advantage of the circumstances to emerge triumphant from the quarantine and the COVID-19 crisis.