U.S. relations with China have fractured over the years, making doing business overseas more expensive, and because of that experts believe that Mexico could overtake China in becoming the top manufacturer for American companies.
“American and International companies (including Mexican companies) are setting up and have been setting up now for the past five to seven years production in Mexico because it’s close to the market,” Ricardo Rubiano, founder of real estate investment firm RubiGroup Capital, told The Epoch Times. “The products are delivered quickly into the United States marketplace. We have a cultural relationship with Mexico that we understand better, 30% of the population in the United States will be Hispanic. So there is a lot of interconnectivity with a country like Mexico.”
The phenomenon of companies moving their manufacturing bases to Mexico and closer to the U.S. market is part of a trend known as “nearshoring.” Where a company cuts shipping costs by doing business in a nearby country instead of overseas.
“If companies manufacture in Mexico there’s no shipping overseas, there’s no oceans to cross. You can have something manufactured and shipped into the northeast in just a few days rather than however long it takes to cross the Panama Canal in order to get it into Houston or the East Coast,” said Mr. Rubiano whose company operates along the U.S.-Mexico border.
At the beginning of 2023, Mexico became the top U.S. trading partner with bilateral trade between the two countries totaling $263 billion during the first four months of this year, according to a report from the Federal Reserve Bank of Dallas.
“Mexico’s emergence followed fractious U.S. relations with China, which had moved past Canada to claim the top trading spot in 2014. The dynamic changed in 2018 when the U.S. imposed tariffs on China’s goods and with subsequent pandemic-era supply-chain disruptions that altered international trade and investment flows worldwide,” said the Federal Reserve Bank of Dallas. “Mexico’s gains mirror its rise in manufacturing, a key component of goods moving between it and the U.S. During the first four months of 2023, total trade of manufactured goods between Mexico and the U.S. reached $234.2 billion.”
Hundreds of Companies Race to Mexico
In 2022 the Mexican government made a bold announcement that several hundred companies had shown interest in relocating to Mexico after the pandemic revealed the vulnerabilities of the present global supply chain, which was dominated by China.“The health crisis caused by COVID-19, the war between Russia and Ukraine, and the slowdown of the economy in China have affected the global chains of production and distribution of raw materials and this has generated a negative impact on the global market,” said the Secretary of the Economy of Mexico Raquel Buenrostro. “The challenges caused by these world events have motivated the need to strengthen regional markets and supply chains in key economic sectors for our country. The Government of Mexico was able to face the crisis caused by the pandemic.”
Ms. Buenrostro went on to state that because of Mexico’s ability to “weather the storm,” it has attracted the attention of several North American countries to relocate south of the border.
“Currently there is the intention of more than 400 North American companies to carry out a relocation process from Asia to Mexico. This is a sign of the importance of the TMEC (Mexico-United States-Canada Treaty), a trade agreement where ties with the United States and Canada have been strengthened, and where an institutional framework was established that grants legal certainty to investors, businessmen, and consumers in the region.”
It’s a transformation for Mexico that could eventually lead it to replace China as the world’s factory, according to experts.
The Chips Race
Mexico is even looking to capitalize on the race to develop semiconductors that power mobile phones, cameras, microphones, and other electronic equipment by luring more tech businesses to the country. According to the Semiconductor Industry Association, 80 percent of the world’s semiconductors (pdf) are produced in Asia.But due to the rise of geopolitical tensions and supply chain disruptions, the reliance on Asia to produce the hundreds of parts needed to create a mobile device has left the United States in a vulnerable position.
In an attempt to achieve chip sovereignty, the United States has unleashed 52 billion dollars in order to create a domestic supply chain for smart products through the Chips and Science Act.
“The CHIPS and Science Act provides $52.7 billion for American semiconductor research, development, manufacturing, and workforce development. This includes $39 billion in manufacturing incentives, including $2 billion for the legacy chips used in automobiles and defense systems, $13.2 billion in R&D and workforce development, and $500 million to provide for international information communications technology security and semiconductor supply chain activities,” the White House said in a press release.
Though making all those parts on U.S. soil would be a tall order which is why a strategic partnership with Mexico to manufacture chips could be to the benefit of both countries. Mexico has been building a new “silicon valley” from where it hopes to build chips in a corridor from Mexico City to the cities along the U.S. border.
