Living in a World of Unintended Consequences – Part 3

As we continue our story of the financial events that have led us to many unintended consequences, we’d like to explore the relationship between China & Mexico a bit further… specifically – what makes the future relationship between these two nations symbiotic?

First, we must mention again that Mexico is in need of financial partners – foreign lenders – to help build that nation’s infrastructure.  As we noted previously, the United States has historically offered many private banking candidates to help fill that role, but is no longer allowed to do so. China seems poised and willing to seize that opportunity and fill that void as the primary nation supporting a banking relationship with our neighbor nation to the south.

It would be appropriate to ask why China, and not Russia, or India, or other emerging global banking powers. China simply has an enormous need for natural resources and raw materials in order to serve it’s emerging population base. But more specifically, China is the world’s largest holder of US debt (US dollars), and thanks to our monetary policies in the USA today these are depreciating assets. Those dollars are burning a hole in the pockets of Chinese banks, and investing in Mexico accomplishes two key objectives: diversifying reserves out of USD, and acquiring natural resources needed to support the emerging population of Chinese consumers.

Let’s call it, “You scratch my back and I’ll scratch yours” between China & Mexico. And who loses out in these transactions… the banks and investors in the USA.

We might point out that as this symbiotic relationship grows between China & Mexico we would expect to see more trade deals made outside the United States. China already has trading deals in place with several African nations, as well as Australia, and the emerging consumer trends in China show no signs of slowing… the future of policies like QE have certainly created some unintended consequences that now clearly impact our nation’s future as a global trading power.

We do not want to predict the demise of the American role in global trading, but we must acknowledge that the weakened influence we now have in Mexico may simply be the first of several significant shifts in the balance of power. In other words, instead of controlling the global trading table, the US will be seated with several other players who hold similar power – and that diversity of powers will also effect the future of the dollar as the primary currency for global trade to becoming one of several currencies that compete for global value.

In conclusion, American businesses that desire to do business in mexico and with Mexican companies will need to understand the role China now plays – and will continue to play – as a lender, supplier, manufacturer, and buying of goods from our neighbors in Mexico.

What questions does this new world order raise for you as a business owner? As an investor?

As always, we welcome comments & questions… and we value the dialogue from those who hold different opinions. We look forward to hearing from you.

Categorized in: Blog

This post was written by Conscient Capital