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Mexico usurps China as biggest exporter to the US – Industry roundup: 13 February

Mexico displaces China as biggest exporter to the US

Mexico overtook China to become the biggest exporter of goods to the US in 2023, according to data released by the Bureau of Economic Analysis, a US government agency.

The US imported goods and services totalling US$427.2 billion from China last year, a drop of around 20% from 2022, while Mexico’s exports to its northern neighbour rose by 5% to US$475.6 billion.

It marked the first time in two decades that Mexico outpaced China to become America’s top source of official imports; a shift that highlights how increased tensions between Washington and Beijing are altering trade flows and also narrowing the United States’ trade deficit with China.

American consumers and businesses turned to Mexico and also Europe, South Korea, India, Canada and Vietnam for auto parts, shoes, toys and raw materials.

The US trade deficit with Mexico increased by 17% to $152.4 billion in 2023. Meanwhile, its deficit with China narrowed 27% to US$279.4 billion, falling to the lowest level since 2010, according to the US data.

As a whole, the total US trade deficit in goods and services, which measures the difference between exports and imports, was US$773.4 billion last year, a 19% drop from 2022.

Antonio Gabriel, global economist at Bank of America, commented: “Global supply chains are gradually shifting their approach from one based on efficiency to one increasingly based on geopolitical risk management.

“Since [US-China] trade tensions began, ‘nearshoring’ may have brought up to 3% of Mexico’s GDP in additional net exports, about 60% of the increase in gross exports to the US of about 5% of GDP.”

America’s total trade deficit in goods and services narrowed 18.7% last year. Overall US exports to the rest of the world increased slightly in 2023 from the previous year, despite a strong dollar and a soft global economy.

The recent weakness in imports, and drop-off in trade with China, has partly reflected the pandemic. American consumers stuck at home during Covid-19 lockdowns spent freely on Chinese-made laptops, toys, Covid tests, furniture and home exercise equipment.

As concerns about the coronavirus faded in 2022, the US continued to import Chinese products, as bottlenecks at congested. ports finally cleared and businesses restocked their warehouses.


Study predicts resilient global trade volumes

Global export and import volumes are forecast to grow 8.5% and 5.8% respectively over the next six months, according to a major study released by Citi.

Citi partnered with banking market research and analysis firm East & Partners to research on supply chain challenges, resiliency, and the future of supply chains for the world’s largest and most complex organisations.

As summary of the key findings from the proprietary analysis include:

  • Resilient global trade volumes forecast: The Top 100 revenue-ranked corporates in each of 28 markets across North America, Asia Pacific (APAC), Europe, Middle East, and Africa (EMEA) and Latin America (LatAm) predict strong export and import growth of 8.5% and 5.8% in the next six months, respectively. Led by North America and LatAm, this robust trade volume forecast compares favourably to the prior year analysis.
  • Gauging supply chain complexity: APAC stands apart from the rest of the world distinctly in the area of supply chain complexity. Corporates are adapting quickly to a prolonged period of consolidation and risk management, reflected in a greater receptiveness to reducing the number of supply chain partners in their network in response to margin compression, funding issues and reshoring suppliers in new trade corridors.
  • Trade corridor realignment quantified: Globally, almost one in three enterprises are implementing a “China Plus One” strategy while a further one in four are planning to. The main beneficiaries are Vietnam, Thailand, and other Southeast Asian countries.
  • Real time inventory management shift: While only one in 10 corporates have attained comprehensive real-time treasury management capability, eight in 10 are investing in real-time supply chain funding functions.
  • Managing rising rate impact on cost of funds: Only one in 10 firms have been insulated from rising rates impacting their cost of funds as interest rate risk jumps higher. Total debt linked expense for global corporates has increased by no less than  50% for one in three enterprises, doubled for a similar proportion and expanded by over 200% for one in five firms with interest expense pressure greatest in LatAm.
  • Future proofing global supply chains: Smart contracts are the overwhelming key focus area for supply chain visibility technology investment in 2024, nominated by two thirds of global corporates and twice as prominently as FX risk management tools.
  • ESG imperative – COP28 expectations: Corporates are largely sceptical of UN COP28 resolutions going far enough to curb climate change and demand to see agreed standards regimes and a stronger voice of business being contributed and heard.

Further information is available from

Body Shop UK to appoint administrators

Ethical cosmetics pioneer The Body Shop, which introduced consumers to bath bombs, White Musk fragrance and Hemp hand cream, has begun the process of filing for administration with jobs at risk across the brand's 200-plus UK stores.

The chain currently employs 10,000 people across 3,000 stores it operates in more than 70 countries around the world, with a further 12,000 staff working in franchises. 

Established in 1976 by the late Dame Anita Roddick, the company became famous for encouraging the reuse of its plastic bottles and refusal to test products on animals. However, in recent years it has seen its popularity in the UK with shoppers diminish due to the rise of rivals Lush and Holland and Barret. 

After being sold to France’s L'Oreal for £675million (US$854 million) by Dame Anita in 2006, the company has changed hands through multiple owners, before being bought by private equity firm Aurelius three months ago for £207million. 

After purchasing the brand, Aurelius said that “despite the challenging retail market there is an opportunity to re-energise the business to enable it to take advantage of positive trends in the high-growth beauty market.”

It has since emerged that the business has insufficient working capital and suffered from a poor Christmas period of trading. 

According to reports, restructuring expert FRP Advisory will be appointed to significantly restructure the brand.

In January, the Body Shop claimed that most of its business stemmed from mainland Europe and Asia.

It told trade paper Retail Week: This further prioritises the Body Shop's strategically important markets and global head franchise partner relationships, which it will look for opportunities to build.

“The Body Shop will also focus on more effectively reaching customers by strengthening digital platforms, developing new sales channels, and via differentiated retail experiences.”

World’s major economies in process of decoupling, says BofA

The biggest players in the global economy are on different trajectories, and markets around the world are reflecting the shifting landscape, according to Bank of America (BofA).

In a note to clients BofA strategists comment that the US economy continues to show remarkable resilience, European growth has faltered, and China faces the most challenging outlook from a combination of real estate woes, deflation and adverse demographics.

“Signs of decoupling are present in global growth, trade, and equity markets,” they write.The US in particular has seen strong GDP growth in recent quarters and steadily cooling inflation, as well as promising economic data and a lengthy stock market rally.

The bank holds a soft landing and easing monetary policy beginning in June as their base case for the US. Investors also appear to be optimistic, with the S&P 500 regularly reaching new records over recent weeks.

Stronger-than-expected growth and robust labour market data to close out 2023 suggest continued positive momentum in the months ahead, according to BofA. 

Tighter financial conditions have put the US commercial real estate (CRE) sector under more pressure, the firm noted, which is reflected in greater pain for the office-building market. Treasury Secretary Janet Yellen has voiced her concern on CRE, but remains assured that it won't devolve into a systemic risk to the banking sector. 

While uncertainty persists on what the Federal Reserve will do next to address the “last mile” of inflation, it is seen as unlikely to sway the US's positioning compared to other major economies.

However, the outlook for the eurozone looks softer. “Growth in the Euro area has been very anaemic, including weaker-than-expected data in Germany," strategists said. “In spite of this, our base case remains for the European Central Bank (ECB) to start cutting rates in June.”

BofA expects Euro area growth at 0.4% in 2024 and 1.1% in 2025, although Germany, the bloc's biggest economy, will be weak at -0.4%, while Spain will outperform with 1.3% growth. The wide spectrum of outlooks within Europe will eventually converge, assuming there are no additional growth shocks. 

“From a market perspective, weakness in Germany is easier to digest than weakness in the periphery,” the strategists commented. “German domestic demand remains a large driver for other Euro area countries’ exports, but so do German exports themselves given the integration of the inner-Euro area production chain.”

China, the world’s second largest economy, faces a unique bearish cocktail of unfavourable demographics, bleak consumer confidence, and an exodus of foreign investors.

Those contrasting economic performances have shown up in stocks, with China lagging the world and struggling to shake the “uber bearish” conditions.

“SPX has outperformed the MSCI World Index, while European equities underperformed in comparison,” BofA strategists said. “Moreover, the decoupling of China equities is starker, and has yet to show any signs of recovery.”


India moves ahead with digital rupee pilot

India is moving ahead with the next stage of its digital rupee (INR) pilot, adding programmability and offline payment capability.

The country has been testing a retail central bank digital currency (CBDC) for the past year, enabling person-to-person and person-to-merchant transactions and recently reaching the milestone of one million transactions a day.

The Reserve Bank of India (RBI) is now ready to add programmability, enabling transactions for specific and targeted purposes.

At a press conference, RBI officials offered the example of a business programming specific expenditure such as business travel for employees.

Asked about the impact on fungibility, deputy governor T Rabi Sankar used another example: a school awards a student money to buy books at a store. The money is not fungible for a period but becomes fungible again once received by the store.

The RBI is also set to test offline functionality, a key consideration to ensure that the e-rupee works in areas with poor or limited internet connectivity. Several pilots will test different options in locations such as mountainous areas.


EU moves nearer using frozen Russian assets for Ukraine

The European Union (EU) has moved closer to using the profits from frozen Russian central bank assets to finance Ukraine’s reconstruction with the adoption of a new law.

The move, in line with steps taken by the G7, establishes a legislative route by which profits generated by confiscated Russian assets under specific circumstances could ultimately find their way toward Ukraine via the EU budget.

Both the EU and the G7 froze some €300 billion of Russian central bank assets following Russia’s invasion of Ukraine in February 2022 but have been hesitant on if and how these funds can be used.

Two-thirds of the funds are in the EU, with the majority held by Belgium’s clearing house Euroclear. So far, only taxes on the assets in Belgium have been earmarked to a dedicated fund for Ukraine handled by the Belgian government.

EU member states gave the green light last month as part of the bloc’s show of support for Ukraine ahead of the second anniversary of Russia’s full-scale invasion.

The legislation passed on Monday means central securities depositaries (CSDs), such as Euroclear, will be prohibited from using net profits and must keep revenues from the Russian assets separate and stored until EU member states unanimously decide to set up a mechanism for them to be used.

The European Commission would then be expected to transfer the money to the EU budget and subsequently to Ukraine, though it is not specified when it would arrive there to be used.


Germany sees Algeria as hydrogen supplier

The German government is looking beyond Europe to supply hydrogen in coming years and has agreed on a task force with Algeria to facilitate the framework for imports, according to EU news website .

While progress on a European hydrogen pipeline connecting Spanish electrolysers to German industrial centres is being stalled by Paris, the website reports Berlin is looking to other parts of the former French empire.

“Germany and Algeria have maintained a close energy partnership since 2015. We now want to expand this and encourage Algeria to produce more green hydrogen in the future,” said Germany’s Vice-Chancellor Robert Habeck.

By 2030, the German government estimates a hydrogen import demand of between 45 and 90 terrawatt hours (TWh) annually. Slightly less than half of projected domestic production – lagging behind build-out targets – meaning that imports could play a more significant role than predicted.

Much climate-friendly gas could come through the well-established natural gas pipeline network connecting Tunisia in North Africa to the European mainland. 

Like Italy’s energy group Snam, its owners hope to switch to hydrogen eventually and the project is alternatively called SoutH2 or “Southern Hydrogen Corridor.” Berlin and Rome have promised political backing for the project.

Algeria and Germany want to set up a joint task force to ensure that there’s hydrogen to flow. Algeria, for its part, hopes to supply 10% of EU hydrogen demand by 2040.

“The task now is to create the necessary technical and economic conditions for hydrogen supplies between Algeria and Europe,” said Habeck, who’d visited the country with a business delegation.

While even partial hydrogen transport to Europe – where natural gas is “blended” with hydrogen to boost its green credentials – remains far-off, German companies have begun entering into deals with the Algerian energy sector. 

VNG, the second-biggest gas wholesaler in Eastern Europe, became the first German energy company to acquire Algerian gas, recently striking a deal with state company Sonatrach.

The “historic contract” served to strengthen Sonatrach’s “energy partnership with Europe” and “marks the start of deliveries of natural gas to Germany,” the company’s CEO, Rachid Hachichi, said in a statement.

VNG’s CEO Ulf Heitmüller called it a “medium-term gas supply contract”, adding that his company hoped to import hydrogen in the future.


NatWest and Moneyhub accepted onto new UK open banking DPS

UK-‘Big Four’ bank NatWest and the data and payments platform Moneyhub have both been named as a supplier on the Crown Commercial Service's (CCS) new Dynamic Purchasing System (DPS) for open banking and payment services.

CCS supports the UK public sector to achieve maximum commercial value when procuring common goods and services. In 2021-22, CCS helped the public sector to achieve commercial benefits equal to £2.8 billion (US$3.55 billion) “supporting world-class public services that offer best value for taxpayers.”

The DPS will be open to all public sector entities across the UK, encompassing central government, local authorities, National Health Service (NHS), police, education providers, devolved administrations, and charities. This confirmation enables buyers to utilise NatWest's Payit Open Banking solutions and gain access to the Confirmation of Payee (CoP) API, thereby enhancing fraud prevention measures.

NatWest is already well integrated within the public sector. For example, it is one of the largest suppliers of commercial cards under CCS’ Payment Solutions 2 framework. It is also one of the two house banks on the government banking contract.


Lugano’s second digital bond to be settled using CBDC

The City of Lugano, in southern Switzerland’s Italian-speaking Ticino region, has issued its second CHF 100 million (US$114 million) native digital bond. Settlement uses the Swiss franc (CHF) wholesale central bank digital currency (CBDC) as part of the Project Helvetia III CBDC project. Helvetia is a limited time initiative allowing the use of the CBDC through to June 2024.

It follows a year after Lugano’s first CHF100 million digital bond issuance. In both cases, the bond can be held in the SIX Digital Exchange’s (SDX) central securities depository (CSD) and the SIS conventional one. The 10-year 1.415% bond is listed on both the SDX and the main SIX exchange.

Late last year, the wholesale CBDC was used to settle two other SDX digital bond issuances by the Canton of Zurich (CHF100 million) and the City of Basel (CHF105 million).

The lead managers for the Lugano issuance were Zürcher Kantonalbank (ZKB), Basler Kantonalbank and J. Safra Sarasin.

Wholesale CBDCs generally restrict access to banks, and given this is a pilot, only those banks that are participants. ZKB will settle using the wholesale CBDC and probably Basler Kantonalbank. Given the City is not a CBDC participant, it will receive money in the conventional manner.

ZKB said that it closed its order book in just 17 minutes. It received nine orders, with the largest allocation of CHF8 million, despite an order for a higher amount. Almost half was allocated to asset managers, followed by banks (22.8%), insurers (18.6), pension funds and treasuries.

Lugano’s Mayor Michele Foletti said of the issue: “It concretises the City’s orientation of wanting to be a ‘model of innovation’ and to “promote and support digital transformation, technological innovation, development and research, with the aim of being a cutting-edge city.”


Revolut launching eSIMs for UK travellers

UK fintech Revolut has revealed to CNBC that it is launching phone plans across Britain, making it the first financial services firm in the country to offer telecom plans and among the first globally.

The digital banking and payments group said that it will start offering eSIMs — SIM cards that can be stored virtually rather than in physical form in the device — this week. The plans will begin rolling out for users in the coming days.

Customers on Revolut’s basic app experience without any subscription can get a standard eSIM plan that allows them to access their Revolut app so that they can top up their phone as and when needed. For instance, if a Revolut user arrives at an airport and runs out of data on their current SIM provider, they can still access features on their Revolut app free of charge and top up their data as usual.

Revolut customers on the company’s £55 ($69.47) a month, premium Ultra package will get 3 gigabytes (GB) of data to use globally, with a rolling refresh every month. That means that they will not have to worry about unexpected roaming charges when entering another country.

The cost of using mobile data overseas has increased for Britons in recent years. Several mobile carriers, including BT, Vodafone and Three, have reintroduced roaming charges since the UK left the European Union. Britons were previously able to travel across the EU without incurring roaming fees. Meanwhile, most mobile carriers do not include free data in non-EU countries as part of their standard plans.

Revolut users without an Ultra subscription can get an introductory offer of 100 megabytes (MB) of free data if they apply before 1 May. The offer is valid for seven days.

Revolut has partnered with UK mobile network operator 1Global, formerly known as Truphone, to launch its eSIM.

Tara Massoudi, general manager of premium products at Revolut, said the decision to launch eSIMs was to turn the company into more of an all-encompassing “super app” with services spanning bank accounts, currency exchange, insurance, travel bookings and airport lounge passes.

“Our ambition is very much to be the financial super app,” Massoudi told CNBC. “This is really in that direction.

“Travel is a huge value prop that we’ve always had, and it’s still remained super important for our users. So it’s important that we continue to innovate in that space.”

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