1.
Protectionism, NAFTA and U.S. – Mexico GVCs
1
Gary Gereffi
Director, Duke CGGC
Duke University
South-Southeast Commission and FIDESUR
Merida, Mexico
April 24, 2017

2.
AGENDA
1. Trump’s Protectionism: the Current Context
2. The Evolution of GVCs: 3 Eras
3. GVC Competition for US Market: China vs. Mexico
4. NAFTA’s Impact on the Mexican and U.S.
Economies

3.
© 2013 Duke CGGC
TRUMP’S PROTECTIONISM & U.S. ECONOMY
Trump’s protectionism: “buy American, hire American”
 NAFTA free trade deal – “a complete and total disaster”
 World Trade Organization – “another one of our disasters”
 Trump’s executive order (signed April 18, 2017) – a “historic step” to
help protect American manufacturers and American workers*
Research and policy-relevant questions:
 Which country poses the biggest threat to the U.S. economy: Mexico
or China?
 If NAFTA were dismantled, would U.S. manufacturers & workers be
better off?
 Will protectionism improve U.S. innovation and income growth?
3
*Source: http://www.cnn.com/2017/04/17/politics/trump-wisconsin-buy-american/index.html

4.
© 2013 Duke CGGC
FDI Promotion in the South-Southeast Region of
Mexico
The South-Southeast Region of Mexico is already
targeting many GVCs relevant to U.S.-Mexico trade
–Textiles-apparel, automotive, electronics, medical
devices, offshore services, high-value agriculture
FDI challenges
–Which sectors are most appropriate?
–What stage of the value chain?
–What nationality of FDI?
–What end markets?

5.
THE EVOLUTION OF GVCs: 3 ERAS
5

6.
© 2013 Duke CGGC
GVCs: 1st ERA
1970-1990 – Economic globalization 1.0 (global outsourcing)
 Cross-border production sharing by mfrs. (US-Mexico “maquila”
trade)
 Rise of buyer-driven chains (GPNs led by retailers, brands &
supermarkets)
• Sears, Kmart, JC Penney (early 1970s); Liz Claiborne, Nike, Reebok (late
1970s); Walmart, Target (1980s); Tesco, Carrefour (mid-1980s)
 Emergence of Washington Consensus (neoliberal reform package
promoted by IMF, World Bank & US Treasury: stabilization,
6

7.
© 2013 Duke CGGC
GVCs: 2nd ERA
1990-2008 – Economic globalization 2.0 (BRICs and beyond)
 Three events circa 1990 resulted in the “great doubling” of world labor market
from 1.5 billion to 3 billion workers (Richard Freeman)
• Fall of Berlin Wall (1989) – dismantling of USSR and end of Cold War
• Opening of China (early 1990s) – Deng Xiaoping
• Economic liberalization in India (1991)
 Regional economic integration and trade agreements: EU (1993), NAFTA
(1994), CAFTA (2000)
 Rise of China -- pre-eminent global exporter of manufactures (2000s)
7

8.
© 2013 Duke CGGC
GVCs: 3rd ERA
Global economic recession (2008-09) & rise of economic
nationalism (2015-present)
 Dramatic slowdown in imports by US and EU, and closure of many
export factories in developing economies around the world (esp. East
Asia and Latin America).
 End of Washington Consensus and EOI development strategy it
promoted.
 Large emerging economies (BRICs + Mexico, Southeast Asia, etc.)
turn inward
 Weakening of regional economic blocs (EU, NAFTA) and mega trade
pacts (Trans-Pacific Partnership and Transatlantic Trade and
Investment Partnership)
 Legitimacy crisis for UN system of trade and development 8

9.
GVC BATTLE FOR THE U.S. MARKET:
CHINA VS. MEXICO
9

10.
 Head-to-head competition in U.S. market
 China is world’s leading exporter of many
manufactures, esp. consumer goods
 China and Mexico are typically among the top
three exporters to the U.S. market in many
product categories
 China is moving ahead of Mexico with
dominant market shares in the United States,
especially in 2000-2005 period
Mexico vs. China
10

11.
Mexico's and China's Competing Exports to US Market, 2000-
2014
11
SITC
Category Product
Value
(billions)
Share of
US market
Value
(billions)
Share of
US market
Value
(billions)
Share of
US market
Mexico 6.4 11.5 5.6 9.6 13.5 16.6 -1.9 7.0
China 6.3 11.3 28.6 49.3 53.3 65.7 38.0 16.4
US Total 55.9 57.9 81.1
Mexico 9.1 20.6 10.8 13.6 12.1 10.2 -7.0 -3.4
China 4.6 10.3 29.6 37.3 68.7 58.0 26.9 20.8
US Total 44.3 79.5 118.4
Mexico 3.1 18.3 5.0 21.8 7.2 21.4 3.5 -0.4
China 2.0 11.9 6.1 26.6 11.2 33.2 14.7 6.6
US Total 17.1 23.1 33.7
Mexico 4.6 16.3 10.2 22.2 19.1 30.4 5.8 8.2
China 0.4 1.5 3.6 7.8 8.3 13.2 6.2 5.4
US Total 28.4 46.2 62.9
Mexico 3.2 16.9 4.6 13.6 7.6 18.3 -3.3 4.7
China 4.5 23.6 16.2 47.7 19.2 46.3 24.1 -1.4
US Total 18.9 33.9 41.5
Mexico 8.7 13.6 4.7 5.8 4.0 4.4 -7.8 -1.4
China 8.5 13.2 27.1 33.4 34.2 37.9 20.2 4.5
US Total 64.3 81.2 90.2
Source: US Department of Commerce (http://dataweb.usitc.gov), Downloaded Aug 26, 2015
84
Apparel and
Cothing
778
Electrical
Machinery
784 Auto Parts
2007
821 Furniture
752
Automatic Data
Processing
Machines
764
Telecom
Equipment
2014 Change in
Market Share
2007-2014
Change in
Market Share
2000-2007
2000

12.
12
Source: USITC http://dataweb.usitc.gov downloaded Aug 26, 2015

13.
13
Source: USITC http://dataweb.usitc.gov downloaded Aug 26, 2015

14.
14
Source: USITC http://dataweb.usitc.gov downloaded Aug 26, 2015

15.
15
Source: USITC http://dataweb.usitc.gov downloaded Aug 26, 2015

16.
 China is a lower-cost producer overall (labor
costs lower, but not transport & tariffs)
 China has huge scale economies
 China has a coherent and multidimensional
upgrading strategy – diversify and add high
value activities
 China is using direct foreign investment to
promote “fast learning” in new industries
 China uses access to its domestic market to
attract TNCs and promote knowledge spillovers
Why is China gaining U.S. market share over Mexico?
16

17.
China’s Supply Chain Cities in Apparel
Source: David Barboza, “In roaring China, sweaters are
west of socks city,” New York Times, Dec. 24, 2004. 17

18.
18
 What kinds of work are Chinese, Indian,
and American engineers actually doing?
• Answer: Not just product adaptation,
but cutting-edge research &
commercialization
 China: More than 1,200 MNC R&D Centers
• GE’s China Technology Center:
Advanced research in energy storage,
environmental management
• Microsoft Research Asia: Cutting-edge
graphics & multimedia research

19.
NAFTA’S IMPACT ON THE MEXICAN AND U.S.
ECONOMIES
19

20.
NAFTA: More than Free Trade
NAFTA: the world’s largest free trade agreement
 Overall trade between 3 NAFTA partners: >$1.1 trillion in 2016
• Canada & Mexico account for 34% of US exports in 2016 (Canada, #1; Mexico,
#2)
• Canada & Mexico supplied 26% of US imports in 2016 (Canada, #2; Mexico,
#3)
NAFTA: cross-border FDI  integrated & complementary supply
chains
 Most trade between the US and its NAFTA partners in key US manufacturing
industries (autos, electronics, appliances, machinery) involves “production
sharing” in vertical supply chain relationships: US tends to keep higher
value-added components
 US imports from NAFTA partners have a high percentage of US-made inputs
• 40% of US imports from Mexico are of US origin

21.
Trump’s Proposals vis-à-vis NAFTA and Mexico
Recent trade-related proposals from President Trump
• Withdraw from NAFTA or renegotiate various provisions
• Impose a 20% border tax on all imports from Mexico
• Enact a 35% tariff on light vehicles imported from Mexico
Automotive and autoparts sector – largest NAFTA industry
• NAFTA countries produced 17.8 million light vehicles in 2016
• 16% of US exports to Canada and Mexico is auto-related
• Canada is #1 export market for US autoparts ($22b); Mexico is #2 ($20b)
• Within NAFTA, 80-90% of automotive trade is intra-industry
Estimated impact: U.S. 35% tariff on light vehicles imported from
Mexico*
• In 2015, Mexican vehicle exports contain an average of 40.3% US content
• US sales decline: 450,000 units; US job loss – 31,000 workers
*Source: Center for Automotive Research, “NAFTA Briefing: Trade benefits to the automotive industry and potential
consequences of withdrawal from the agreement,” January 2017.

22.
Without NAFTA, China Is the Alternative
“China hasn’t developed a world-class automotive sector, and the fact that U.S.,
Canada and Mexico have worked so closely together is partly a reason for that”
(Gordon Hansen, UCSD)*
US imports from China vs. Mexico – major contrast
• Imports from China: final goods with low US content (mainly buyer-driven
chains)
• Imports from Mexico: intermediate & final goods with high US content
(producer-driven chains)
US goods imports (and trade deficit) in 2016:
• China: imports – $463 billion; trade deficit – -$347 billion
• Mexico: imports – $294 billion; trade deficit – -$63 billion
• Canada: imports – $278 billion; trade deficit – -$11 billion
* http://www.wbur.org/hereandnow/2016/04/27/economist-gordon-hanson-nafta

23.
Beyond Protectionism
In a global value chain world, all imports are not the same
• Their impact depends on type of GVC and relationship between trade
partners
In the current global economy, value chains are becoming
increasingly regionalized and integrated supply chains are a
regional asset
• NAFTA, the European Union and East Asia – different regional models
A major driver of the protectionist sentiment that propelled
Trump’s election is that America’s blue collar workers feel left
behind by globalization
• Technological change (automation, new skills) is more important than
trade
• Trade agreements and immigration will be flash points for policy change
US hegemony has been replaced by a multipolar world

24.
Gary Gereffi
ggere@soc.duke.edu
Center on Globalization, Governance &
Competitiveness (CGGC)
Grey Building, Suite 0010, Lower Level |
2020 W. Main St. | Durham, NC 27705