Mexico Is Growing as New China Hub; 2024 Exports Already Breaking Records

China Plants Flag in Mexico

Mexico is fast becoming a new hub for China offshore investment and exports.

The U.S. share of foreign direct investment (FDI) in Mexico has little changed over the years, while China’s share is rising quickly. The Dallas Federal Reserve estimates that FDI from China was roughly $1.2 billion in 2022, dwarfed by FDI from the U.S. and Canada, but that is going to change in the years ahead. 

In October 2023, The government of Nuevo León, a northern state bordering the United States, announced that China’s Lingong Machinery Group, which makes diggers and heavy construction equipment, announced plans to invest $5 billion in the state, including a greenfield factory building. Trina Solar said it would invest up to $1 billion in Nuevo León. BYD Auto, a company that counts Warren Buffet’s Berkshire Hathaway as an investor, is also eyeing a new assembly line in Mexico both to sell BYD cars to the Mexicans, and shipping them across the border to U.S. buyers.

CPA’s economics team warned in a report published in September that Chinese companies were increasingly investing in manufacturing operations in Mexico to obtain duty-free access to the U.S. market. According to Mexico’s Secretary for the Economy, FDI from China into Mexico rose by about $225 million annually, nearly quadrupling the average annual investment from the decade prior from 2007 to 2016. The increase of foreign direct investment corresponds with the levy of Section 301 and Section 201 tariffs by the Trump administration on Chinese imports. Regardless of those tariffs, Mexico replaced China as the new No. 1 source of imports in the U.S. – led by the U.S. automotive industry which is importing near record high numbers of cars from Mexico.

According to reports, China’s developers are building industrial parks in Mexico now to host Chinese companies. Hofusan Industrial Park, about 25 miles north of Monterrey, is a converted 2,100 acre ranch that is home to manufacturing plants for ten Chinese companies amounting to $1 billion of investment over the past three years. Hofusan Industrial Park is expected to grow to thirty-five businesses over the next two years and have as many as 15,000 workers when at full capacity, more than half the size of the nearest town of Salinas Victoria, and will include assembly lines for automotive and white line goods.

An executive for Hisense, which invested $260 million in a manufacturing plant for refrigerators in 2021 at Hofusan, remarked that his company “had all the benefits under the free trade agreement” due to its product being manufactured in Mexico.

Then there are President Biden’s industrial policies, like the Inflation Reduction Act, which have encouraged global companies to “nearshore” in North America in order to gain access to tax benefits. A lot of that came here. Some of it went to Mexico. Mexican made EVs, for example, qualify for the $7,500 EV tax credit for consumers.

Lastly, the pandemic lockdowns in Asia led to unrealistic shipping costs that turned many businesses off to maritime shipping. That, too, has led global manufacturers to move closer to the U.S. market. Setting up shop in Mexico gave them a China-lite set up, only with a free trade agreement to entice them.  The dollar surely goes as far in Mexico, given the weakness of the peso, as it does in China.

China has done a good job reading the room. When it comes to reshoring, the attitude among China businesses was that if we want to keep, and hopefully grow, market share in the U.S. post-tariffs, we need to be closer to the U.S.  And that they have done.

China’s container exports to Mexico rose nearly 60% year over year in January, according to global freight rate intelligence platform Xeneta

China-based shippers moved 117,000 twenty-foot equivalent units (TEU) during the month compared to 73,000 TEUs in January 2023.

“This is probably the strongest growing trade in the world right now,” Xeneta chief analyst Peter Sand wrote in a blog post published Thursday.  It is unclear if any of those products are destined for the United States, of course. And given all of the investment China is making into Mexico, one can assume a lot of that is to serve those domestic interests.

If Mexico is going to be the new China, it won’t come without scrutiny from Washington.

Senators Tom Cotton (R-AR) and Sherrod Brown (D-OH) recently introduced the Stop Mexico’s Steel Surge Act, bipartisan, bicameral legislation to reinstate a 25% Section 232 steel tariff on Mexico to address surging imports from Mexican-owned companies. 

Mexico continues to violate a 2019 joint agreement to lift steel tariffs in return for Mexico avoiding a surge of steel imports, including predatory pricing to drive U.S. producers out of the domestic market. Despite efforts by United States Trade RepresentativeKatherine  Tai to persuade Mexico to abide by the agreement, the White House has been quiet on the subject.

Biden ordered the Commerce Department to look into the risk of China EVs being attached to a smart grid. China-made cars are subject to tariffs of at least 27.5%, but China car companies made in Mexico will not be.

For his part, Sen. Josh Hawley (R-MO) introduced a bill to put tariffs up to 100% on China EVs coming from Mexico.

Still, despite deeper China investments there and big jumps in China exports to Mexico to kick off 2024, most of Mexico’s exports are from Mexican and American companies. Trade between the two sides was a record breaker in January. 

Two-way trade between the countries increased just under 1% in annual terms to $64.52 billion, the highest figure ever for the month of January.

The U.S. Census Bureau and the Bureau of Economic Analysis (BEA) published data this month that showed Mexico’s exports here were worth $38.04 billion in January, a 2.8% increase compared to January 2023. The BEA said that was Mexico’s highest ever revenue total for exports shipped to the United States in the month of January. The value of Mexican exports to the U.S. has now risen during nine consecutive months as it replaces China for imports.


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