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With US-China geopolitical tensions showing no signs of abating, Chinese investment in the US is facing many difficulties. Therefore, Beijing is looking to Mexico as an alternative market to maintain its influence in the North American region.
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| A Chinese industrial park in Mexico |
China still counts the United States as its top export market, with U.S. imports from China expected to be worth $536.8 billion by 2022. Rather than abandoning it, China is building operations within the North American trade bloc as a way to supply Americans with goods ranging from electronics to clothing to furniture. Chinese companies have poured $20.84 billion into projects in Mexico since 2008, including about $8.29 billion in 2018 alone.
Washington has restricted high-tech trade with China for the past half-decade. The trade war between the two countries that began in 2018 has resulted in hundreds of billions of dollars in tariffs on two-way shipments, forcing Chinese exporters to recalibrate their international supply chains.
Chinese companies supplying networking hardware, oil drilling equipment, apparel and electric vehicle development have chosen Mexico for its access to natural resources and cheap labor, according to the South China Morning Post. Finished goods from Chinese factories in Mexico can easily be shipped across the land border to the United States, where the three-year-old US-Mexico-Canada trade agreement has cut tariffs on many imported goods. Mexican President Andres Manuel Lopez Obrador has “estranged” from the US politically and “hasn’t been very interested in Western businesses,” Ellis said, so both shifts present opportunities for China. China is also looking to Mexico for energy and agricultural goods, according to Zhao Xijun, vice dean of the School of Finance at Renmin University in Beijing.
Even US electric carmaker Tesla is encouraging Chinese suppliers to set up factories in Mexico after Tesla boss Elon Musk said Tesla would set up a giant factory in Mexico to produce car batteries. And Chinese companies have responded to the call. Several of Tesla's Chinese suppliers have announced plans to build factories in Mexico. In March, auto parts maker Ningbo Xusheng Group said it would invest up to $276 million to set up a production facility in Mexico, with the project set to officially start in late May.
The interest of Chinese manufacturers in Mexico is part of a broader trend known as “nearshore,” in which international companies are moving production closer to their customers to reduce their vulnerability to transportation issues and geopolitical tensions. The participation of Chinese companies in this trend suggests that U.S.-China tensions will be a lasting feature of the next phase of globalization. But one fundamental point remains: Regardless of political tensions, the parties involved in U.S.-China trade will only become more closely linked.
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