How Chinese businesses are entering the US via Mexico

How Chinese businesses are entering the US via Mexico

At Man Wah Furniture's Monterrey plant, all of the luxurious leather couches and reclining armchairs are "Made in Mexico" - 100%.

Large US shops like Costco and Walmart are the intended recipients of these goods. However, the corporation is Chinese, and Chinese money was used to build its Mexican production facility.

Nearshoring, the latest term in Mexican industry, has its roots in the triangle connection between the United States, China, and Mexico.

Man Wah is just one of several Chinese businesses that have moved to northern Mexico's industrial parks in recent years in an effort to get their products closer to the US market. They not only save transportation costs, but their finished product is also entirely Mexican, so Chinese companies may dodge the US taxes and restrictions levied against Chinese products as a result of the ongoing trade spat between the two nations.

General manager Yu Ken Wei of the firm takes me around its expansive facility and tells me that the decision to relocate to Mexico was a logistical and financial one.

In flawless Spanish, he states, "We hope to triple or even quadruple production here." "The purpose here in Mexico is to bring production up to the current state of our operation in Vietnam."

The company hired 450 individuals in Mexico even though it just moved to Monterrey in 2022. In the next years, Yu Ken Wei said they want to expand to more than 1,200 workers and run many additional lines at the company.

"People here in Mexico are very hardworking and fast learners," adds Yu. "Our personnel are proficient and very productive. Therefore, I believe Mexico has excellent strategic options when it comes to labor."

Mexico's economy is undoubtedly benefiting greatly from nearshoring; as of June of last year, the country's overall exports had increased 5.8% to $52.9 billion (£42.4 billion) from the previous year.

Listen to BBC World Service reporter Will Grant's report on Chinese companies operating in Mexico.

There are few indications that the trend will slow down. Almost half of the yearly total back in 2020 was announced as capital investment in Mexico in only the first two months of this year.

The Chinese-Mexican industrial park Hofusan is home to the Man Wah couch manufacturing. Its plots are in such great demand that every accessible area has been taken.

According to the Industrial Parks Association of Mexico, all of the sites that must be developed throughout the nation by 2027 have already been purchased. It makes sense that a large number of Mexican economists believe China's interest in their nation is not a fleeting trend.

According to Juan Carlos Baker Pineda, a former vice-minister for foreign trade in Mexico, "the structural reasons that are bringing capital to Mexico are here to stay." "I have no indication believe the trade war between both China and the US is going to diminish any time soon."

A member of Mexico's negotiation team for the USMCA, the new North American free trade deal, was Mr. Baker Pineda.

"While the Chinese origin of the capital coming into Mexico could possibly be uncomfortable for the policies of some countries," he continues, "according to international trade legislation, those products are, to the maximum extent possible, Mexican" .

Mexico now has a clear strategic advantage over the two giants as a result of this: it just overtook China as the US's top trade partner, a momentous and symbolic shift.

An additional important component of nearshoring in Mexico is the establishment of Mexican facilities by US companies, often after the relocation of production from factories in Asia. This has contributed to Mexico's expanded commerce with the US.

Elon Musk's statement last year about his ambitions to build a new Tesla Gigafactory outside of Monterrey may have been the most notable. Yet the $10 billion project has not yet begun construction by the electric vehicle manufacturer.

Moreover, despite recent employment layoffs at the automaker and worries about the state of the world economy, Tesla has reportedly slowed down its plans for the project.

However, experts advise being wary of drawing Mexico into the larger geopolitical conflict between the US and China in relation to Chinese investment.

"The new rich guy in town, China, is having problems alongside the old rich guy in town, the US," says Enrique Dussel of the National Autonomous University of Mexico's Center for China-Mexico Studies. "Moreover, Mexico - under previous administrations, and in this one - has not established a strategy vis-à-vis this new triangular relationship."

There could be additional political issues in the near future, since elections are approaching on both sides of the US-Mexico border. However, very few see any improvement in US-China ties during the next four years, regardless of who wins the presidency—Joe Biden or Donald Trump.

According to Mr. Dussel, the term "security-shoring" is a better way to characterize nearshoring since Washington has prioritized national security above all other considerations in its interactions with China. He contends that Mexico has to be cautious about being entangled.

Mr. Dussel said, "Mexico is putting up a big sign to China saying: 'Welcome to Mexico!'" in the midst of this crisis. "This isn't going to end well for bilateral relations between the US as well as Mexico in the medium term. You don't need a PhD to know that," he continues.

Some people have more optimism. Former Mexican trade official Juan Carlos Baker Pineda said, "In my opinion, the question is not if this trend will continue, but rather how much of this trend can we take advantage of."

"I have no doubt that similar conversations are taking place in Costa Rica, Vietnam, and Colombia. Therefore, in order to maintain that trend over time in Mexico, we must ensure that the circumstances that are favorable on their own are consistent with the choices made by businesses and the government."

Before shipping north, another couch is finished by the skilled Mexican seamstresses at Man Wah Furniture in Monterrey.

It's possible that an American family purchasing it from a nearby Walmart won't fully comprehend the intricate geopolitics behind its manufacture.

However, nearshoring is presently Mexico's main advantage in these unfriendly times of global commerce, regardless of whether it is a cunning backdoor to the US or a part of an expensive fight between superpowers.