Mexico sees a huge opportunity in strained US–China relations. The country expects foreign investments to surge owing to the intensified tensions between the two largest economies in the world, AFP news reports.
Chinese companies relocate manufacturing to Mexico for US imports
An increasing number of automakers are relocating their manufacturing operations to Mexico primarily due to geopolitical issues and supply chain constraints during the COVID-19 pandemic. By doing so, these foreign companies gain easy access to the world’s biggest economy.
In 2023, Mexico overtook China as the leading product exporter to the US owing to the growing trend of “nearshoring” or “friendshoring.”
Manufacturing association Index’s President, Humberto Martinez, said there is a “boom” in companies moving production to Mexico. In fact, his organization forecasts the country’s manufacturing industry to receive approximately $9 billion of foreign investment in 2024 alone, marking a “new world economic order.”
Foreign investments in Mexico
More affordable labor costs, tax incentives, and a North American free trade deal have enticed foreign companies to invest in the south of the US border.
Most recently, potential Cold War concerns between the US and China have boosted Mexico’s appeal among Chinese players.
“We’re in a privileged location due to our proximity to the border to be able to export to the main market, which is the United States — the largest market in the world.
Political and economic issues caused a lot of productive capacity to move from the United States to Asia more than a decade ago. And finally, for reasons of international relations, much of that capacity is returning.”
Juan Jose Ochoa, director general of Aztec Technologies in northeast Mexico’s Monterrey
Foreign direct investment in Mexico reached a record-breaking total of over $36 billion in 2023. Of that total, 38% came from the United States. It demonstrates that nearshoring is not just mere hype but “definitely a reality,” as noted by CAINTRA Head Juan Pablo Garcia.
US warns penalty
Despite Mexico’s anticipation of a surge in foreign investments (particularly from Chinese companies), the US government mulls penalties for Chinese electric automakers attempting to bypass the high tariffs by moving production to Mexico.
US Trade Representative Katherine Tai warned that the US government would need to take a different approach to introducing penalties on Chinese-made EVs built in Mexico.
US President Joe Biden recently announced a tariff hike on Chinese-made electric vehicles from 25% to 100% in 2024. The initiative is part of the US government’s strategy to protect American workers and companies against cheap Chinese imports.
