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About three weeks ago, Mexico officially passed China as the top trading partner of the United States. Most of the conventional wisdom has argued that declining U.S.-China relations and supply chain woes led many big corporations to shift manufacturing out of China and into Mexico, located directly South of the United States.
Some of that story is certainly true. Everything from tariffs to tightening export controls to forced labor concerns to a tougher-to-access Chinese market is causing companies to rethink their relationship with China. And Mexico is certainly an attractive spot to set up shop, with its proximity to the United States.
But that isn’t exactly the entire picture.
Canadian company Descartes Systems Group is out with a new report finding that while U.S. imports from Mexico are certainly on the rise, exports to Mexico from China also are on the rise.
Chris Jones, executive vice president of industry at Descartes, said:
“Mexico has moved to the forefront of U.S. global sourcing conversations since the previous administration began implementing tariffs on China and pandemic-induced trade flow disruptions. Chinese goods are following this shift in trade flows that is increasingly coming from Mexico into the U.S. The analysis shows that Mexico exports to the U.S. grew 54% over the last seven years; however, Chinese exports to Mexico increased by 134% in the same period while the Mexican economy only grew 3.4%.”
To examine just how this trend is impacting the trade landscape, Descartes examined 10 two-digit commodity categories and their top country of origin for the years 2016 to 2022, and compared them to U.S. imports during the same period.
For example, the researchers studied category HS-94, which includes furniture and bedding. Goods with a country of origin label from Mexico accounted for 14.3% of all U.S. imports in that category, and the total value of these types of goods from Mexico increased 17%. However, the total value of U.S. maritime imports increased 43%, which suggests Mexico actually lost market share. At first glance, this seems odd.
But it starts to make more sense once you look at the Chinese imports to Mexico. In that same time period, Chinese imports of HS-94 goods to Mexico jumped 131.1%. Descartes found that 15.7% of Mexican imports of these goods to the United States were actually manufactured in China.
It’s like this in other categories. In 2022, there was a 107.7% increase in iron and steel imports from Mexico to the United States. That’s a big jump — but not as big as the jump of iron and steel from China to Mexico, which soared 218.2%. Descartes found that 21.3% of Mexican iron and steel products to the United States were actually made in China.
So while Mexican imports to the United States are on the rise, “Mexico imports of goods from China are accelerating at an even faster rate and taking a strong position in supporting Mexico’s export growth to the U.S.,” Descartes finds.
There’s been a lot of talk about “reshoring,” and how, if corporations are worried about doing business in China, they should just move their operations to places like Mexico. But what this data shows is that China is also playing that game by sending products to Mexico — and likely seeking to dodge tariffs and other trade enforcement efforts in the process. This is a worrying trend.