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Mexico’s dynamic trade relationship with the United States is attracting significant interest from logistics companies and prompting scrutiny from policymakers regarding the potential exploitation of recent North American trade laws by international firms to bypass U.S. tariffs.
Major integrated logistics firms like Maersk are expanding their operations to accommodate the record volumes of Mexican trade entering the U.S. This surge is largely attributed to the United States, Mexico, and Canada Agreement (USMCA), enacted under former President Donald Trump to replace NAFTA.
One contentious issue involves the criteria for a product to receive a “Made in Mexico” label from U.S. Customs. Under the USMCA framework, items that undergo transformation from raw materials or components brought into Mexico may qualify for tariff exemptions based on value added during production.
Recently, Zekelman Industries, North America’s largest independent steel pipe manufacturer, filed a formal lawsuit against the Mexican government. The company claims that violations of trade agreements and illegal steel dumping have forced it to close its Long Beach, California, manufacturing plant in 2022 and is projected to shut down another facility in Chicago next year, resulting in a loss of 400 jobs in the U.S.
Chinese enterprises, facing high tariffs when importing directly into the U.S., are reportedly using Mexico as an entry point. “When they bring their products into Mexico and enhance them in some way, they can then qualify for the USMCA provisions,” noted Jordan Dewart, CEO of Redwood Mexico, a logistics firm specializing in cross-border trade. “This has become a pathway for Chinese imports to evade tariffs,” he added.
Both Chinese and European companies, which previously manufactured in China, are increasingly shifting their operations to Mexico. This shift is evident from the substantial rise in trade, with a 22% increase in goods moving from China to Mexico from January to August 2024, following a 33% growth in the previous year.
The surge in foreign direct investment from these regions is propelling a historical rise in cross-border trucking between Mexico and the U.S., particularly in industries such as automobiles, electronics, and textiles. Concerns about Mexico acting as a “backdoor” for Chinese goods to circumvent tariffs are growing bipartisanly.
In response to these trade dynamics, the Biden administration has modified steel and aluminum tariffs, which originally exempted Mexico and Canada. New policies will now impose tariffs on materials originating outside North America that are subsequently processed in Mexico, addressing fears of Chinese products slipping through tariffs via the USMCA framework.
The ongoing changes in trade policy reflect broader trends in logistics, emphasizing the growing need to nearshore supply chains amid increasing global risks, aligning with U.S. legal frameworks.
Mary Lovely from the Peterson Institute for International Economics suggests that characterizing the situation as a “backdoor” implies wrongdoing, which may not be the case. “The presence of Mexican manufacturers using Chinese components does not inherently mean they are breaching any rules of origin,” she clarified.
Trump’s Trade Negotiation Plans and Their Impact
Former President Trump has expressed intentions to renegotiate the USMCA, with a review process set to commence in July 2026. This renegotiation may focus significantly on Chinese manufacturing operations in Mexico.
Despite Trump’s threats to impose additional tariffs, trade volumes with Mexico have remained robust, as evidenced by a 52% increase in cross-border trucking traffic through September, according to recent analysis from Motive.
Logistics giants such as DHL and Maersk are expanding their footprints in regions like El Paso and Laredo, Texas, constructing warehouses and distribution centers to leverage this booming trade. Dewart remarked, “The influx of foreign direct investment in Mexico is poised to translate into new manufacturing capabilities and a steady stream of goods destined for the U.S.” He added that Redwood Mexico has established facilities in El Paso to further capitalize on these trends.
The recent nearshoring report by Moody’s Analytics highlights the increasing significance of Chinese and East Asian markets in Mexican exports. Organizations in the logistics sector strategically establish operations based on future growth projections, informed by current trade volumes and anticipated foreign investments.
To manage the rising container traffic, Canadian Pacific Kansas City is constructing a new railroad bridge connecting Laredo, Texas, with Mexico, expected to be operational by 2024. This facility will double the capacity for transporting goods across this vital trade corridor.
Furthermore, the railroad has introduced a new train route linking Chicago and Kansas City with Monterrey, Mexico, enhancing supply chain efficiency.
According to the Rhodium Group, Chinese foreign direct investment in Mexico has reached approximately $3.7 billion in 2023, and this trend spans beyond China to include diverse international investments. Simon Cohen, CEO of logistics company Henco, noted, “Northern Mexico is experiencing a surge of foreign investment from various regions, including Asia, Europe, and beyond, as companies seek to establish manufacturing presence to tap into the U.S. market.”
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