Intensification of geopolitical and economic competition between the US & China and pandemic-related disruptions intensified calls for supply chain resilience. It accentuated trends – de-risking/decoupling, friend-shoring, nearshoring, and China + 1. The resulting reconfiguration of global supply chains has created winners (and losers).
As US supply chains partly decouple from China, the big winner is Mexico. In 2023, Mexico surpassed China as USA’s largest trading partner.
Mexico & China have been competing for the US manufacturing market for years; China was the clear leader. However, amid the shifting sands of geopolitics, Mexico seems poised to pull ahead. In 2023, it pipped China as the top exporter to the US. Those exports were mainly driven by manufacturing, which comprises 40% of Mexico’s economy, according to Morgan Stanley.
Mexico seems poised to challenge or supplement China as the US’ factory. It has benefitted from geographical proximity, free trade agreement (USMCA) & plentiful cheap labour. The US-Mexico-Canada free trade agreement (USMCA) means companies face fewer barriers moving, selling & buying goods, commodities, parts & finished goods across North America.
In 2023, the U.S. purchases of Chinese products was $427.2 billion, a 20% decline from 2022. In 2023, Mexico exported $475.6 billion worth of products to the U.S., an increase of 4.6% compared to the previous year. This made Mexico the top exporter to the U.S., displacing China for the first time in 21 years, as per CNN.
US investments in Mexico have been rising. FDI in Mexico hit a record high of more than $36 billion in 2023. But, of the $36 billion in 2023, only $5 billion were new investments which means nearshoring may be happening, but the tide is bringing in soft waves, not the desired tsunami, says a Wilson Center article titled, “Nearshoring, it is Mexico’s opportunity to lose,” cautioning “Mexico would do well to understand that opportunities do not last forever.”
In parallel, Chinese investments in Mexico’s manufacturing sector have also surged considerably to circumvent the sanctions/higher tariffs.
Monterrey, the capital city of Neuvo Leon, a major business & industrial hub, & a metro area of over 5 million, close to the US border, undergoing massive metamorphosis, best demonstrates the Mexican dream. More goods are arriving in Texas from Monterrey. Tesla is setting up a Gigafactory with a $10 billion investment.
A privileged geography is Mexico’s big asset. And it has new-president-elect, Claudia Sheinbaum, a climate engineer & the first woman elected to the top job. She has promised to boost renewable energy investment by $13.57 billion & to deliver “low & just carbon transition.”
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