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Surging Trade Between China and Mexico Amid U.S. Tariff Discussions
Recent customs data has highlighted a notable rise in trade between China and Mexico, coinciding with discussions about potential tariffs during the ongoing presidential campaign. A significant influx of raw materials and components from China has been observed entering Mexico, where these goods are manufactured into fully assembled products before being shipped to the United States, primarily via rail or trucking services.
Jordan Dewart, president of Redwood Mexico, a specialist in cross-border logistics, noted, “We are witnessing an increasing number of Chinese companies relocating their production to Mexico.” These companies are often partnering with Chinese third-party logistics firms that offer services like warehousing and shipping. By operating in Mexico, these businesses can transform imported parts and raw materials into finished products, allowing them to capitalize on the United States-Mexico-Canada Agreement (USMCA) and label their products as “Made in Mexico,” rather than “Made in China.”
This trend of shifting manufacturing closer to consumers, often referred to as nearshoring, shifts the economic nationality of products. As Mary Lovely, a senior fellow at the Peterson Institute for International Economics, explained, a product must undergo a “substantial transformation” to change its origin. For example, a set of wooden boards transformed into a desk qualifies as a different product, potentially meeting the requirements for a Mexican origin label.
Impact on European Operations
The reshuffling of manufacturing is also evident among European companies. Simon Cohen, CEO of Henco Logistics, has observed a shift in operations, with European firms that once relied on China now moving production to Mexico. He attributes this to a robust demand for nearshoring, spurred by the USMCA and a strategy known as “China Plus One.”
Data from freight analytics firm Xeneta reveals that container trade from China to Mexico surged by 26.2% from January to July 2024, following a growth of 33% in 2023. Notably, May recorded a peak in container imports from China, with June closely following suit.
Growing Concerns About Tariff Evasion
Industry analysts are expressing concern that increasing volumes of goods moving from China to Mexico may serve as a “back door” for imports into the United States. Peter Sand, chief analyst at Xeneta, highlighted that while this trade route has gained traction, it raises questions regarding trade policy compliance. There are suspicions that it could be perceived as circumventing U.S. tariffs.
Mexico’s extensive network of free trade agreements, including the USMCA and agreements with the European Union and various countries across Latin America, contributes to its attractiveness for manufacturing operations. The ongoing trade discussions between China and the U.S. have added to the urgency for American companies to source products from Mexico, particularly during the political upheaval surrounding tariff discussions.
John Piatek, vice president at GEP Worldwide, emphasized that the dynamics of USA-China trade relations were accelerated during President Trump’s administration, who has maintained a strong stance on confronting perceived economic threats from China. However, President Biden’s administration has largely continued these protective measures, enforcing tariffs on various goods including semiconductors and electric vehicle technologies.
Statistics Highlighting Mexico’s Role as a Key Importer
Statistics indicate a dramatic shift in import patterns, with imports from Mexico to the U.S. growth trajectory markedly outpacing imports from China. Between 2020 and mid-2024, imports from Mexico surged by more than 20% annually, while imports from China declined from 17.7% to 13.5% during the same period.
As the political landscape evolves, trade barriers are looming large in campaign discussions. Both leading political candidates are signaling intentions to bolster trading regulations rather than relax them, potentially impacting future trade flows.
Mary Lovely warned that imposing additional tariffs could have detrimental repercussions, sparking illicit trade practices and corruption within developing countries.
Cross-Border Trade Expansion
The increase in imports is mirrored by a simultaneous rise in cross-border trucking from Mexico, particularly via Laredo, Texas. Data from Motive indicates a record number of truck crossings, solidifying Mexico’s position as the top U.S. importer against the backdrop of declining imports from China.
Moody’s recent analysis highlighted significant investments in Mexico’s auto industry, driven largely by companies such as Tesla, Ford, and General Motors. In 2023 alone, Mexico saw $36 billion in foreign direct investment, reflecting a 27% increase over the previous year.
Future Trade Dynamics
The environment surrounding trade relations suggests a complex web of interactions, with potential for further changes influenced by upcoming elections. Companies are proactively adapting to potential shifts, preparing to front-load shipments through Mexico to mitigate risk associated with changing tariffs.
Logistics firms are expanding their presence in Mexico to tap into the growing trade opportunities. Investments by companies like Maersk and CPKC aim to enhance infrastructure for the expected upswing in trade.
Overall, the trends in trade between China, Mexico, and the U.S. reflect deeper economic ties and a strategic shift in how companies navigate international markets, potentially reshaping North American supply chains for years to come.
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