ChainMail | ‘Back Door’

China looks to Mexico as North American manufacturing hub

ChainMail | ‘Back Door’

What country is the top foreign supplier of goods to the United States? Most people would say China, but readers of ChainMail know that Mexico recently displaced China to claim the top spot with 15% of imports.

What is China doing in response to Mexico’s economic growth? Boosting its investments south of the border. China sees Mexico both as an attractive market for its products and as a “back door” into the United States, as The Economist put it.

Depending on the components used, Chinese-owned companies in Mexico can take advantage of the North American free-trade agreement to ship goods north, while avoiding stiff U.S. tariffs on China-made exports.

Statistics on Chinese business activity in Mexico are fuzzy, but Mexico News Daily says Chinese companies made 19 investment announcements worth $8.14 billion between January and November, potentially making China the second-largest foreign investor in Mexico after the United States.

Chinese electronics, clothing, and furniture companies all are looking to Mexico as a manufacturing site for the same reason American firms are bringing production back to North America from Asia: They want to be closer to the U.S. market to avoid getting burned by the next supply chain snarl. Tariffs related to worsening U.S.-China political ties add to the incentive.

“Our main market is the United States,” Bill Chan, a Chinese furniture executive, told The New York Times. “We don’t want to lose that market.” The Times said Chan’s company, Man Wah Furniture Manufacturing, is building a $300 million factory in Mexico.

China’s interest in Mexico includes the auto industry. Chinese vehicles, unknown in the U.S., are hot sellers in Mexico. “It no longer scares us that the product is made in China,” a Mexican foreign investment expert told Bloomberg. “Every other high-tech product is made in China, like iPhones.”

Globalization once was dominated by China, which acted as a factory to the world. Now supply chain lines hopscotch countries and crisscross regions. The manufacturing map looks different today, but the goal is the same: Sell the most goods as efficiently as possible.

Read the complete Issue 49 of ChainMail here.

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