Mexico Is Growing as New China Hub; 2024 Exports Already Breaking Records (2024)

FAQs

Mexico Is Growing as New China Hub; 2024 Exports Already Breaking Records? ›

Mexico Is Growing as New China Hub; 2024 Exports Already Breaking Records. Mexico is fast becoming a new hub for China offshore investment and exports. The U.S. share of foreign direct investment (FDI) in Mexico has little changed over the years, while China's share is rising quickly.

Amidst China's challenges, Mexico quietly carved its path. In July 2023, the Latin American nation surpassed China to become the United States' largest trading partner by volume for the first time in history, a testament to its newfound prominence.

Mexico's exports to the U.S. surpassed China's for the first time in 20 years. American companies have been diversifying supply chains due to unstable U.S.-China relations. The Biden administration has been encouraging this trend, calling it "friendshoring" to mitigate geopolitical risks.

Labor costs in Mexico are significantly lower than in China, and the country has a large, skilled workforce. Additionally, Mexico's proximity to the United States provides a logistical advantage for manufacturers serving the North American market. Trade agreements and tariffs also play a significant role in this shift.

Foreign Direct Investment Flow

From January 1999 to December 2023, Mexico has received a total of US$2.55B in FDI from China, distributed in equity capital (US$1.75B), inter-company debts (US$584M), and reinvestment of earnings (US$219M).

There are a few theories as to why this is occurring. One of the most popular and somewhat commonsensical is that China and/or its sourcing partners are bypassing tariffs by bringing goods into Mexico before sending them across the border, essentially making them “Mexican” imports and avoiding tariffs.

Chinese companies' growing interest in Mexico is mainly attributed to the following factors: Proximity to the United States. Chinese investment primarily targets industries and geographic locations that export to the United States, one of the world's largest consumer market.

Among Mexico's major exports are machinery and transport equipment, steel, electrical equipment, chemicals, food products, and petroleum and petroleum products. About four-fifths of Mexico's petroleum is exported to the United States, which relies heavily on Mexico as one of its principal sources of oil.

Yearly Trade

The most common destination for the exports of Mexico are United States ($421B), Canada ($22.2B), China ($12.7B), Chinese Taipei ($7.86B), and South Korea ($7.29B).

Ramos said Mexico and China have been competing for the US manufacturing market for years, but amid a shifting US-China relationship, Mexico looks poised to pull ahead. Mexico surpassed China as the top exporter to the US in 2023.

Why is the US buying more from Mexico than China? ›

Mexico is an attractive manufacturing alternative due to the benefits of localization. Free trade agreements between the U.S., Mexico, and Canada (USMCA) eliminate tariffs on most goods manufactured in Mexico. In addition, Mexico is a much lower geopolitical risk than China.

Chinese firms, in this case, are eager to avoid geopolitical disruptions to the supply chain and make use of a more cost-effective labour force. The same trend is seen in China's battery exports to Mexico, particularly the lithium batteries used in electric vehicles.

Competitive Labor Cost

Relative to the United States, along with most other developed countries, direct labor in Mexico is approximately 70% less expensive. This cost-effective, competitive labor is the driving force behind the success of Mexico manufacturing.

The I.M.F. puts China's per capita for 2023 GDP at $19,073 in international dollars. That is a bit less than Mexico's figure of $19,430. But if Yi is right about China's population, then its per capita GDP would be almost $21,000 this year, roughly $1,500 higher than Mexico's.

On the other hand, Mexico holds about $34B of US debt. So if we were to make a balance, Mexico owes the US $134B, more or less, or about 8% of what it makes in a year. The United States has a services trade surplus of an estimated $8.8 billion with Mexico in 2018, up 19.1% from 2017.

Mexico will, as always, adhere to its friendly policy toward China, firmly support each other with China, facilitate Chinese enterprises' investment cooperation in Mexico, and deepen mutually beneficial cooperation in various fields as well as cooperation in combating drug production and trafficking.

The Bottom Line. The Mexican economy may not be fully developed as of 2021, but with new trade deals with the United States and Canada, it may yet be getting there. As a result, the country is still a good example of an emerging market economy.

The pandemic and the snarl-ups in supply chains it caused also pushed manufacturers to move closer to the American market. And setting up in Mexico has begun to look cheaper, as wages and other costs in China rise. Mexico has tried to lure Chinese money before.

China–Mexico relations are the diplomatic relations between the People's Republic of China and the United Mexican States. Diplomatic relation were established in 1972. Both nations are members of the Asia-Pacific Economic Cooperation, G-20 major economies and the United Nations.