Mexico surpasses China as U.S’s top trading partner following de-risking strategies

Mexico surpasses China as the United States’ top trading partner, driven by “de-risking” strategies amid geopolitical tensions, leading to a manufacturing boom in Mexico.

In a notable shift, Mexico has overtaken China as the United States’ top trading partner, marking the culmination of a trend initiated during the Trump presidency when tariffs were imposed on Chinese exports. This transition reflects the broader global trend of “de-risking” strategies amid geopolitical tensions, with companies increasingly favouring nearshoring or friend-shoring. Nearshoring involves locating production close to consumers, while friend-shoring focuses on placing production in friendly countries.

Mexico has experienced a manufacturing boom as a result of these trends. Companies like Creation Technologies, an original equipment manufacturer whose clients include Fortune 500 companies, have witnessed doubled revenue growth over five years. The move towards Mexico is driven not only by the U.S.-China trade war but also by the pandemic and geopolitical conflicts such as those between Russia and Ukraine. Mexico’s competitive costs and skilled workforce further contribute to its attractiveness for manufacturing operations.

Major corporations like HP, Dell, Apple, and Mitsubishi Motors are shifting part of their manufacturing from China to Mexico and other countries. This diversification is part of a broader strategy to reduce reliance on a single manufacturing hub and mitigate risks associated with geopolitical tensions and supply chain disruptions. The trend is evident in the negative foreign investment in China for the first time since 1998 and significant capital outflows from Chinese stock and bond markets.

However, China remains an active player in the global manufacturing landscape. Chinese companies are also investing in Mexico, primarily to be closer to their American customers, leveraging the U.S.-Mexico-Canada Agreement for tariff-free access to the U.S. market. Chinese enterprises have invested over U.S.$8.29 billion in Mexico-based projects since 2018.

While de-risking measures are reshaping the manufacturing landscape, some companies are doubling down on their Chinese investments. Tesla, for instance, is constructing a massive factory in Shanghai, not only for car production but also for manufacturing its Megapack batteries. Despite geopolitical tensions, Tesla’s CEO Elon Musk expresses “full confidence” in the Chinese market, aiming to sell a substantial portion of the company’s vehicles in China.

The ongoing evolution in global manufacturing dynamics raises questions about the future of “made-in-China” goods. The shift toward diverse manufacturing hubs, technological advancements, and geopolitical considerations contribute to the complexity of this evolving landscape. As companies navigate these challenges, the balance between de-risking strategies and the appeal of China’s vast consumer market remains a critical factor in shaping the future of global manufacturing.