Gangs undermine confidence in Mexican-Chinese trade

Gangs undermine confidence in Mexican-Chinese trade

Recent trade agreements and legislative action in Mexico and China create a positive outlook for both economies. The strength of Mexican gangs, however, threatens to undermine confidence in bilateral trade between the two countries.

China and Mexico have made important advancements in economic liberalization, both as a response to changes in the global economic system and due to the shifting socio-economic structures of each country. While the two rapidly growing nations are long-time rivals competing to export similar goods to foreign markets, recent energy reforms in Mexico and new leadership in China are helping to recast their relationship as mutually beneficial rather than purely competitive.

According to Mexico’s Ministry of Economy, bilateral trade between the two countries was worth $62.7 billion in 2012, up from just $431 million two decades earlier. Close to 90 percent of this trade, however, is made up of Chinese exports to Mexico, and Mexican officials are keen on narrowing this trade gap in the coming years.

A key factor in Mexico’s quest to boost its exports to China is its booming iron ore production in the Pacific coastal state of Michoacán. While this production fuels demand for steel from Chinese traders and investors, it also creates an opportunity for Mexican gangs to diversify their revenues into new emerging businesses.

One local gang, the Knights Templar cartel, took the iron ore industry in Michoacán state hostage, when using one of the country’s most strategic seaports to generate cash income and further its stronghold on local and foreign businesses. Although the Mexican navy was successful in regaining control of the shipping port, the gang still controls how the ore moves and who can stake a claim to mine areas.

Under the Knights Templar’s control, iron ore exports to Chinese buyers jumped to 4 million tons by October 2013, up from just 1.5 million tons a year earlier. Although this dramatic increase in ore exports helps to narrow the trade gap between Mexico and China, gang prevalence undermines confidence in the many trade agreements recently signed by the two countries. Because the Knights Templar controls so much of the local iron ore supply, “the gang has pressured Chinese buyers to purchase ore from them or face reprisals”, according to Reuters.

Upwards of 80,000 people have died in gang-related killings in Mexico since 2006, and with the Knights Templar continuing to strengthen its grip on the local iron ore industry, Chinese buyers may begin to look elsewhere to satisfy the demand for steel. Large mining groups such as Anglo-Australian firm BHP Billiton are keen to deepen their relationships with Chinese buyers. China imported 35.5 million tons of iron ore from Australia in October of last year.

With iron ore expected to maintain its financial strength in 2014, Mexico cannot afford to have confidence in its mines and ports compromised by the threats and complicated dealings of local gangs. According to Vale, a Brazilian mining corporation, the “seaborne iron ore market will grow at 3.6 per cent to the end of the decade.” This is just the type of growth that Mexico hopes can balance its large trade deficit with China over the coming decade.

Upon his swearing in as President of Mexico in late 2012, Enrique Peña Nieto vowed to shift law enforcement away from large drug busts, and towards protecting citizens and businesses from gangs. Whether or not Nieto makes good on this promise is vital to the safety of Mexico’s citizens and the security of the nation as a growing force in the global economy.

Categories: International, Security

About Author

Rami Ayyub

Rami is an analyst with a US Defense and Space firm, where he works in strategic planning and finance for Civil and Defense programs. He holds Bachelor degrees in Finance and Classical Music from the University of Maryland, College Park.