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Chinese exports to the US have collapsed, while Mexican exports have increased. Political tensions play an important role in this.
The US imports more from Mexico than from China. The collapse in Chinese imports to the USA is not unexpected. “Trade between the USA and China is very heavily impacted by the political tensions between these two countries,” explains Sabine Stephan. She is a foreign trade expert at the Hans Böckler Foundation in Düsseldorf.
Both countries increasingly used foreign trade as a lever to advance their own interests. This trade war is strongly linked to Donald Trump. He had introduced punitive tariffs against China. And his successor Joe Biden has not abolished it either. “Foreign trade between the USA and China is still burdened with very high tariffs from both sides,” says Stephan.
2023 US Trade Activities Report
Foreign expert Stephan mentions another aspect: “The USA is currently trying to greatly reduce its economic dependence on China. They are trying to strengthen their own industrial base and import less, especially from China.”
Friendshoring statt Offshoring
Biden has also called on American companies to look for suppliers in friendly countries. This friendshoring serves Mexico as a friendly nation: Mexico has been linked to the USA for many years through a free trade agreement; the NAFTA agreement was founded in 1994. “The USA is trying to reduce the risk, both in terms of the region and the provider or supplier,” says Stephan.
Legend: The USA relies on imports. They have close ties with Mexico; the country is an interesting trading partner for the USA. Keystone/EPA EFE/Francisco Guasco
Trade statistics show that Chinese companies have settled in Mexico in recent years. For example, you want to benefit from free trade with America. China is not alone with this strategy. Especially since the pandemic, many international companies have been trying to get as close to the sales market as possible, says Sabine Stephan.
“You have customer proximity and very efficient, short supply chains. And you also reduce the transport problem as much as possible.” China has additional positive effects: If they produce in Mexico, they can export to the USA duty-free – and they are no longer affected by the punitive tariffs.
China is investing in the automotive sector
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Legend: The automotive industry in Mexico is attractive, also for China. Reuters/Henry Romero
Chinese companies make many investments in the automotive sector. Stephan sees the reason as there have been so-called automobile clusters in Mexico for several decades, large locations of US and European companies. «There is a very good infrastructure. You have the big car manufacturers, the suppliers, very well-trained workers. And since Mexico is part of the free trade agreement with the USA and China produces in Mexico, China can even benefit from subsidies. These are granted as part of the Inflation Reduction Act,” explains Sabine Stephan.
As the past has shown, China will probably compensate for collapsing exports through prices, Stephan expects: “Whatever cannot be sold in America will be sold at very low prices in other sales markets.” This is problematic for Europe, especially given the transformation in the automotive industry towards electric cars.