As the US supply chains decouple from China, Mexico’s manufacturing sector is emerging as a winner. Companies are turning to manufacturing in Mexico to address supply chain disruptions experienced during the pandemic and decrease reliance on US-China trade amid geopolitical uncertainty. This trend, known as nearshoring, involves bringing production facilities closer to home markets. With the reorganization of global supply chains, Mexico’s manufacturing sector is poised for long-term success, surpassing China as the top exporter to the US in 2023, driven by manufacturing, which makes up 40% of Mexico’s economy.
US imports from Mexico have been increasing, while Chinese exports to the US have seen a decline of 20% in 2023 compared to the previous year. US Trade Representative Katherine Tai highlighted the need to create more resilience in the US economy and trade, as the current supply chains have made the economy overly reliant on China. Both US and Chinese companies see potential in Mexican manufacturing due to factors such as low labor costs, proximity to American markets, and the US-Mexico-Canada Agreement, which promotes cost-effective trade in North America.
Despite US efforts to decrease reliance on China and create more resilient supply chains, the move can be tricky and may inadvertently benefit China in accessing new markets and avoiding US tariffs. Mexico, a global hub for car factories, plays a significant role in the automotive industry as virtually every American auto manufacturer depends on parts from Mexico due to their cost advantages. Free trade agreements like the USMCA facilitate the movement of goods across North America while tariff policies like those imposed on Chinese imports help dissuade companies from relying on Chinese supply chains.
While Mexico’s manufacturing sector is increasing exports to the US, there are concerns that Chinese companies may be using Mexico as a route to avoid US tariffs on Chinese goods. This is evidenced by a surge in shipping container exports from China to Mexico, suggesting an attempt to circumvent tariffs. Mexican exports to the US have been growing, but a simultaneous increase in Mexican imports from China indicates that production may be boosted by goods manufactured outside of Mexico. US policymakers are working with Mexico to prevent tariff evasion and maintain transparency in trade practices.
Moving factories involves significant investment in time, money, and resources, but companies that are embracing nearshoring are creating long-term opportunities for the Mexican manufacturing industry. There is optimism about the growth potential of Mexican exports to the US, with projections showing a significant increase in value over the next five years. Chinese companies are also eyeing Mexico as an attractive base for investment, with EV maker BYD planning a major expansion in the country. The buzz surrounding places like Monterrey in Mexico as a booming hub for manufacturing indicates the positive impact of nearshoring and the reshaping of global supply chains.
