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Monica LugoJun 3, 2024 12:50:36 PM3 min read

The Question Is and will be China

The Question Is and will be China

May/June 2024

The phenomenon of relocation, or nearshoring, is undoubtedly stronger than ever. There are different types of nearshoring, such as the one where U.S. companies are establishing themselves in Mexico to be close to their market and leave production in Asia as a consequence of the China-U.S. trade war. Large U.S. companies are relocating to Mexico, as it is an attractive destination due to its labor force, but also due to its proximity to the US and the preferential access offered by the T-MEC.

During the first quarter of the year, Mexico continued to be the U.S.'s main trading partner, reaching a record export figure. Between January and February, Mexican exports to the U.S. increased by 7.7% compared to the same period of the previous year, according to the U.S. Census Bureau.

Mexico is not the only country experiencing this phenomenon. Countries like Vietnam, Indonesia, Thailand, and Bangladesh are also seeing an influx of companies relocating their operations.

China's policy of diversifying its manufacturing base is known as "China Plus One." This policy has also contributed to the growth of Chinese investment in Mexico. In just two months of this year, nearly half of Mexico's total annual investment for 2020 has been announced.

However, there is significant concern in the U.S. that Chinese companies are using Mexico as a "backdoor" to enter the U.S. market with Chinese products. U.S. officials argue that China is setting up manufacturing plants in Mexico to avoid tariffs and sanctions imposed by the U.S. on Chinese goods as part of the trade war between the two countries.

Chinese companies maintain that they are not doing anything outside of the legal framework in Mexico, and that it makes sense to invest in the country due to its geostrategic location. However, some experts are urging caution, warning that Mexico could be dragged into a broader geopolitical struggle between the U.S. and China. The triangular relationship is becoming a problem. So much so that senior U.S. officials, as well as the private sector and even presidential candidates, have spoken of this being "a matter of national security."

With elections looming on both sides of the border, the issue will continue to be thorny between Mexico and the U.S., since there is no sign that relations between the United States and China are going to improve. Mexico should be cautious, since, although new investments from Chinese companies benefit us, the Government of Mexico is feeling American pressure and taking action that could hinder access to the Chinese products to North America. An example of this is the decree published by the government on April 23, 2024 where Mexico increased tariffs on 544 products in order to "stop unfair trade from China". Our country is at a crossroads, since we continue to welcome Chinese investments, but on the other hand, our neighbor, ally, and primary trading partner sees it as a great threat.

U.S. Trade Representative Katherine Tai said that the arrival of Chinese companies to Mexico is displacing classic American and European brands, and emphasized that the review of the USMCA, scheduled in 2026, would be "inconvenient" due to the need to change the dispute resolution mechanism, address the climate crisis and thoroughly analyze "the impact of China". Tai added that the three member countries of the Treaty must also reaffirm their interest in strengthening the supply chains for North America to compete successfully with China. Thus, whether we like it or not, China is and will continue to be the big issue in the commercial relationship of our country with the U.S. 




As appeared in the May/June issue of Forbes Mexico.

Forbes MX MAY JUN 2024 copy

Monica Lugo

Monica Lugo now serves as Director of Institutional Relations at Prodensa. She was listed among Forbes' 100 most powerful women in Mexico.