Other major commercial enterprises are teasing building factories there. Most notable is BYD, China’s leading entry-level EV auto maker. At least four other Chinese automakers including MG Motors (owned by SAIC Motors) and Great Wall Motors, are advancing plans to set up shop in Mexico due to the growing animosity between Washington and Beijing over EVs, the sector of the auto market China leads by a mile.
The Biden administration imposed high tariffs on Chinese EVs of 100% on May 14. This percentage increase matched what Sen. Josh Hawley (R-MO) had proposed on all Chinese branded vehicles, including those made in Mexico, effectively nixing the USMCA for Chinese automotive. In April of this year, candidate Donald Trump told Time magazine he agreed with that proposal by Hawley: “I will tariff them at 100%. Because I’m not going to allow them to steal the rest of our business.’’
China is still a minor investor in Mexico, accounting for just around 1% of the $36 billion in foreign direct investment last year. But it is rising due to geopolitical tensions with the U.S.
China FDI flows into Mexico grew on a nominal basis from $38 million in 2011 to $386 million in 2021 before slipping in 2022 to $282 million, but is still well above its historical average, according to the Dallas Federal Reserve.
China corporate investment is geared towards manufacturing and into regions that export to the U.S. A lot of this capital is going towards computer equipment manufacturing thanks to Lenovo’s $20 million computer plant investment in 2007 in Monterrey. In 2021, Lenovo nearly doubled that factory floor to include servers at what it now refers to as its “megasite.”
More China investment is likely. The sector that clearly worries the U.S. will be tied towards industries where the U.S. government has spent a considerable amount of time and effort to protect from China – namely steel, solar, EVs.
The USMCA is up for review in two years. There is a risk that changes will be made to the trade deal that exclude China on the grounds that it has access to subsidies back home, or cheaper capital and cheaper inputs.
It is unclear if this will be successful, but China’s growing presence in Mexico to take advantage of the free trade deal will make it doubly hard for American manufacturers to compete and sell to the big buyers – be it Ford or Target – who are focused on price and not the nationality of the corporate headquarters whose products they are buying. In short, the USMCA is turning into a free trade zone with any multinational from any country that wants to manufacture there – including those from countries facing high tariff barriers. This wipes out China tariff protections and increases the capacity of competing goods in Mexico as China moves in. In some sectors, like automotive for example, U.S. automotive parts suppliers here were used to competing with Mexico in Mexico. But now they are competing with Mexico and China in Mexico.
Mexico doesn’t want to pick a side. It might have to, at least a little bit.
Despite some new tariffs on Chinese imports by the Mexican government, the official position is that China is more than welcome to expand its corporate presence there.
Outgoing Foreign Minister Alicia Bárcena recently said, “Mexico will have to look for other paths” if tensions rise with the United States on account of the ongoing migrant crisis and the inability for Mexico to stop the flow of fentanyl into the U.S. She singled out China as a “country that is constantly looking out for Mexico.” Meanwhile, Juan Ramón de la Fuente, President-elect Claudia Sheinbaum’s pick for foreign minister, recently told El País, “we are going to have the opportunity to review and strengthen relations with China,” Connor Pfeiffer, senior advisor at the Forum for American Leadership, and Ryan C. Berg, the director of the Americas program at the Center for Strategic and International Studies, wrote in July in Foreign Policy magazine.
Can Washington Cope With China Multinationals Moving Into Mexico, And Benefiting From Free Trade?
You might not have heard of it, but the Hofusan Industrial Park is a roughly 2,100 acre industrial park sitting 129 miles south of the Texas border in Salinas Victoria, a town in Nuevo Leon state, Mexico. It’s in a fairly vacant area, still under construction. It’s going to be big.
Hofusan is one of the most well known investments of Chinese capital looking not only to sell to Mexican consumers, but – more obviously – to export everything from furniture to washing machines duty free to the United States.
It is a joint venture between Chinese corporations Holley Group and Futon Group, as well as Cesar Santos, a prominent investor and land owner from nearby Monterrey who will also preside over the Executive Board. Companies like home goods manufacturer Hisense and furniture maker Kuka have announced plans to set up shop there.
“If you want to do good business with America, you must have something close to the market,” Simon Huang, Mexico manager for Chinese furniture company Kuka Home, told Bloomberg.
Holly and Futong are both from the city of Hangzhou in China. They are across sectors, though Holly Group is also invested in generic pharmaceuticals (KPC Group). Futong is a major supplier of optical fiber cables and other telecommunications products used in 5G networks. It is unclear if they will be making any of those products in Mexico, and if they are, would it be for the Mexican market or for export? Too soon to tell.
All told, the Hofusan partners plan to invest up to $60 million on the facility designed to house an estimated 100 manufacturing or assembly plants between now and 2027. The project was launched in 2017, the year Trump began to tease Section 301 tariffs.
In 2022, Japanese newswire Nikkei interviewed some of the people involved in Hofusan, curious about China’s sudden discovery of Mexico. Some quotes from that article:
Other major commercial enterprises are teasing building factories there. Most notable is BYD, China’s leading entry-level EV auto maker. At least four other Chinese automakers including MG Motors (owned by SAIC Motors) and Great Wall Motors, are advancing plans to set up shop in Mexico due to the growing animosity between Washington and Beijing over EVs, the sector of the auto market China leads by a mile.
The Biden administration imposed high tariffs on Chinese EVs of 100% on May 14. This percentage increase matched what Sen. Josh Hawley (R-MO) had proposed on all Chinese branded vehicles, including those made in Mexico, effectively nixing the USMCA for Chinese automotive. In April of this year, candidate Donald Trump told Time magazine he agreed with that proposal by Hawley: “I will tariff them at 100%. Because I’m not going to allow them to steal the rest of our business.’’
China is still a minor investor in Mexico, accounting for just around 1% of the $36 billion in foreign direct investment last year. But it is rising due to geopolitical tensions with the U.S.
China FDI flows into Mexico grew on a nominal basis from $38 million in 2011 to $386 million in 2021 before slipping in 2022 to $282 million, but is still well above its historical average, according to the Dallas Federal Reserve.
China corporate investment is geared towards manufacturing and into regions that export to the U.S. A lot of this capital is going towards computer equipment manufacturing thanks to Lenovo’s $20 million computer plant investment in 2007 in Monterrey. In 2021, Lenovo nearly doubled that factory floor to include servers at what it now refers to as its “megasite.”
More China investment is likely. The sector that clearly worries the U.S. will be tied towards industries where the U.S. government has spent a considerable amount of time and effort to protect from China – namely steel, solar, EVs.
The USMCA is up for review in two years. There is a risk that changes will be made to the trade deal that exclude China on the grounds that it has access to subsidies back home, or cheaper capital and cheaper inputs.
It is unclear if this will be successful, but China’s growing presence in Mexico to take advantage of the free trade deal will make it doubly hard for American manufacturers to compete and sell to the big buyers – be it Ford or Target – who are focused on price and not the nationality of the corporate headquarters whose products they are buying. In short, the USMCA is turning into a free trade zone with any multinational from any country that wants to manufacture there – including those from countries facing high tariff barriers. This wipes out China tariff protections and increases the capacity of competing goods in Mexico as China moves in. In some sectors, like automotive for example, U.S. automotive parts suppliers here were used to competing with Mexico in Mexico. But now they are competing with Mexico and China in Mexico.
Mexico doesn’t want to pick a side. It might have to, at least a little bit.
Despite some new tariffs on Chinese imports by the Mexican government, the official position is that China is more than welcome to expand its corporate presence there.
Outgoing Foreign Minister Alicia Bárcena recently said, “Mexico will have to look for other paths” if tensions rise with the United States on account of the ongoing migrant crisis and the inability for Mexico to stop the flow of fentanyl into the U.S. She singled out China as a “country that is constantly looking out for Mexico.” Meanwhile, Juan Ramón de la Fuente, President-elect Claudia Sheinbaum’s pick for foreign minister, recently told El País, “we are going to have the opportunity to review and strengthen relations with China,” Connor Pfeiffer, senior advisor at the Forum for American Leadership, and Ryan C. Berg, the director of the Americas program at the Center for Strategic and International Studies, wrote in July in Foreign Policy magazine.
The Mexican Association of Private Industrial Parks said that one in five new tenants will be Chinese companies over the next two years alone.
China companies that are coming to town are becoming key players in the Mexican economy. Many are already giants in their industry. Washington will likely try to argue in the years ahead that this is against U.S. economic and national security interests.
According to Pfeiffer and Berg, some of the Chinese companies in Mexico are sanctioned by the United States. Telecommunications company Huawei, which also faces export restrictions, has a significant presence in Mexico’s 4G and 5G networks. On July 13, 2024, Bárcena signed an agreement with Huawei under the pretense that the deal would provide funding to hire women, a move that sells Huawei as a do-gooder corporate citizen not unlike their Western counterparts.
State-owned China Unicom is also present in Mexico, providing cloud services since at least 2021. Washington can argue that Huawei and the sanctioned China Unicom cannot be anywhere near the offices of an American multinational with operations in Mexico.
Another sanctioned company operating in Mexico, China Communications Construction Company, helped construct a section of the Tren Maya, the Yucatan intercity railway project that has become one of current president Andres Manuel López Obrador’s signature infrastructure projects, the Foreign Policy magazine article says. Hong Kong-based Hutchison Ports owns concessions at five Mexico ports, including Manzanillo, which includes two-thirds of container capacity at Lázaro Cárdenas. “These ports are on the receiving end of a massive surge of container traffic from China, which has raised concerns that Chinese companies are using Mexico to circumvent U.S. tariffs,” according to Foreign Policy.
Tariffs and geopolitical risks have placed Mexico ahead of China as America’s No. 1 source of imports.
The next president will have to deal with China’s rise in Mexico and consider whether it warrants a revamp of the USMCA. The original intent of that trade deal was to bring Mexico out of its boom and bust cycle and keep it as a steady source of low-wage labor for the richer north. It was not meant to be a free trade agreement between the U.S. and the world. This is especially true for China, which has the largest trade deficit with the U.S. of any other nation, more than No. 2 European Union and No. 3 Mexico, based on 2023 Census data.
The Foreign Policy writers argue that a course correction is needed in the U.S.-Mexico relationship. They say Mexico should be treated more as a strategic partner than merely a commercial one. But that will require Mexico to relinquish some of its relationship with China and China is pouring money into the country to win hearts and minds.
To date, Mexico’s relative weakness in stemming the flow of migrants into the U.S., coupled with its inability to lay waste to the drug cartels’ fentanyl trade, suggests a partner that isn’t interested in pleasing Washington and is more interested in trade and remittances from Mexicans living and working in the U.S. (which hit a record $63 billion last year).
If there are no changes there, that should signal to everyone that the new Claudia Sheinbaum administration will be no different than Obrador in terms of strategic thinking with Washington. That means Washington will have to deal with Chinese multinationals – tariffed on the Chinese mainland – flooding the U.S. with goods Washington sought to stop either with tariffs or the Inflation Reduction Act. This will have to be tackled one way or another.
“U.S. multinationals loved China until they started to see Chinese companies displacing them in the Chinese market,” said CPA chief economist Jeff Ferry. “Will they still love Mexico in a couple years when they see Chinese multinationals displacing them in Mexican production for the U.S.? I don’t think so. The USMCA agreement needs to be re-thought from the ground up.”
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