As Mexico just ushered in its first female president, the high-tech manufacturing powerhouse also eclipsed China as the leading source of US imported goods. This is an astonishing turn of events as the last time Mexican goods exceeded China’s imports was in 2002, more than two decades ago.
Mexican imports to the US rose 5% from 2022 to 2023, while Chinese imports plummeted 20% over the same period. Not surprisingly, frigid political and economic relations between the US and China lie at the heart of this flip, and both former President Trump and President Biden have been remarkably aligned on their continued desire to weaken the trade relationship.
In 2018, the Trump administration began imposing tariffs on Chinese imports, and President Biden retained the same tariffs once he took office in 2021. This rare demonstration of cross-party agreement was, and remains, rare. Moreover, the Biden administration has nudged manufacturers to reshore and American companies to seek suppliers in countries more closely aligned with the US.
A Boston Consulting Group (BCG) 2023 survey of North American manufacturing executives revealed roughly 90% indicating they plan to move production and sourcing to different countries over the coming five years. BCG estimates $300 billion in additional growth between Mexico and the US over the coming decade.
Mexico provides a distinct advantage, most notably in bulky goods. The automotive and mechanical machinery sectors, coupled with household appliances, power tools, and medical devices, are poised to grow. While having a robust trading partner that shares a border is undoubtedly ideal, challenges are plenty.
Mexico’s political and economic environment has long been exhausting. A new president can bring welcome perspectives, but President Claudia Sheinbaum is a long-standing member of the Morena party, the same party as the outgoing President Ándres Manuel López Obrador, and a party that does not have an extensive track record of an amicable economic and political relationship with the US, despite being its number one trading partner.
Moreover, safety and security issues are of genuine concern in Mexico. Reskilling and upskilling programs will undoubtedly be necessary to promote a robust labor pool and develop a broader value chain. However, firms will need to choose their locations wisely. Half of the ten most violent cities in the world are in Mexico, according to the Citizen Council for Public Security and Criminal Justice. Violent kidnappings were also up by 6% in 2023 compared to the year prior.
An interesting wrinkle has been the Chinese response, including the installation of Chinese factories in Mexico to take advantage of duty-free trade in North America per the US-Mexico-Canada Trade Agreement. A pending tariff war on Chinese-made electric vehicles is coming regardless of who wins the November US elections. If Mexico can address its security and political concerns, a neighbor this size with manufacturing expertise and a hardy labor pool would be a boon for the United States.
