As the US decouples its supply chains from China, Mexico’s manufacturing sector is emerging as a winner. Many companies are turning to nearshoring, bringing production facilities closer to home markets to decrease reliance on trade between the US and China. Mexico’s manufacturing sector has the opportunity for long-term success as global supply chains are reorganized, with predictions that Mexico may pull ahead in competition with China for the US manufacturing market. In 2023, Mexico surpassed China as the top exporter to the US, largely driven by its manufacturing sector, which makes up 40% of the country’s economy.
US imports from Mexico have continued to increase, while Chinese exports to the US have decreased. The US Trade Representative Katherine Tai highlighted the over-reliance on the Chinese economy in US trade and the need to create more resilience in the economy and trade. With low labor costs, geographic proximity to American markets, and the US-Mexico-Canada agreement in place, both US and Chinese companies are seeing potential in Mexican manufacturing. However, shifting geopolitics and competition pose challenges as companies navigate tariff policies and value chains.
Cars play a significant role in illustrating the dynamics of Mexico’s manufacturing sector. Mexico is a hub for car factories, with major companies like General Motors, Ford, Stellantis, and others operating plants in the country. Nearly every American auto manufacturer relies on parts from Mexico due to cost advantages and free trade agreements like the USMCA that facilitate trade across North America. Despite efforts to disengage from Chinese supply chains and tariffs, the complexity of supply chains makes it challenging for companies to navigate the shifting landscape.
While Mexico’s manufacturing sector is boosting exports to the US, there are concerns that Chinese companies might be using Mexico as a route to avoid US tariffs by shipping goods through Mexico. The surge in exports from China to Mexico raises suspicions of circumventing US tariffs, prompting responses from lawmakers and the Biden administration. Both President Biden and former President Trump have expressed goals to grow domestic manufacturing, with differing approaches to dealing with tariffs and supply chain issues. The issue of US-Mexico-China trade is expected to gain prominence in the 2024 presidential campaign.
Despite challenges, companies that are moving forward with shifting supply chains are creating long-term opportunities for Mexico’s manufacturing industry. Investments in factories in Mexico, such as Tesla’s plan to build a new plant in Monterrey, signal a potential boom for the Mexican manufacturing sector in the years to come. Analysts predict an increase in the value of Mexico’s exports to the US, making Mexico an attractive base for Chinese companies such as BYD, which announced plans for a major expansion in Mexico. The city of Monterrey, in particular, is experiencing a surge in growth and investment, positioning itself as a key player in the nearshoring trend.
