The United States is turning away from China and buying from Mexico

At the worst of the pandemic, when supply chains were collapsing and the cost of a container to China increased 20-fold, Marco Villarreal saw an opportunity.




In 2021, Mr. Villarreal left management of Caterpillar Mexico and began surveying companies wanting to move production from China to Mexico. Hisun, a Chinese producer of off-road vehicles, has commissioned Mr. Villarreal to establish a $152 million factory in Saltillo, an industrial hub in northern Mexico.

United States–China tensions

According to Mr. Villarreal, foreign companies, especially those wanting to sell in North America, see Mexico as a viable alternative, particularly because of trade tensions between the United States and China.

“The stars are aligning for Mexico,” he says.

Data released Wednesday shows that Mexico has overtaken China as the top source of U.S. imports – a first in 20 years. This radical change demonstrates the impact of growing tensions between Washington and Beijing on trade flows.

PHOTO BRYAN DENTON, THE NEW YORK TIMES

Companies everywhere are looking to relocate their production from China to other countries around the world. Clothing manufacturer Preslow, of Tizayuca, and its employees are benefiting.

The United States’ trade deficit with China melted in 2023 with a 20% drop – to $427.2 billion – in imports from that country. Americans turned to Mexico, Europe, South Korea, India, Canada and Vietnam for auto parts, shoes, toys and raw materials.

Imports from Mexico remained roughly the same as last year at $475.6 billion.

The total U.S. trade deficit for goods and services (exports minus imports) fell 18.7%. U.S. exports increased slightly in 2023, despite the strong dollar and weakness in the global economy. Imports declined as Americans purchased less crude oil, chemicals, and consumer goods (phones, clothing, camping gear, toys, furniture, etc.).

The recent decline in trade with China is partly explained by the end of the pandemic. American consumers, confined to their homes, purchased laptops, toys, drug tests, clothing, sports equipment and furniture made in China.

Even after the pandemic in 2022, the United States continued to import a lot of Chinese products: congestion at American ports eased and businesses were able to restock.

The world had to deprive itself of Chinese products in 2021, so it gorged itself on them in 2022. Since then, things have returned to normal.

Brad Setser, economist and research fellow at the Council on Foreign Relations

But beyond the pandemic exception of recent years, there are clear signs in trade data that years of tensions have significantly undermined the U.S. trade relationship with China.

By 2023, despite a decade of growth in the U.S. economy, imports from China were at roughly the same level as 10 years ago. U.S. imports from the rest of the world are increasing.

Two economies that are decoupling

“There is decoupling, which weighs heavily on trade flows,” notes Mark Zandi, chief economist at Moody’s Analytics.

According to economists, the relative decline in trade with China is clearly linked to tariffs imposed by the Trump administration, then maintained by the Biden administration.

PHOTO BRYAN DENTON, THE NEW YORK TIMES

A seamstress at the Lazzar Uniforms workshop in Guadalajara, Mexico. Geopolitical risks are pushing companies to look elsewhere, especially to low-cost countries with stable trade relations with the United States, such as Mexico.

The work of Caroline Freund, dean of the School of Global Policy and Strategy at the University of California at San Diego, showed that trade with China for products subject to high tariffs (screwdrivers, smoke detectors, etc.) had declined, but trade in tariff-free products (hair dryers, microwaves, etc.) continued to grow.

According to Ralph Ossa, chief economist of the World Trade Organization, trade between the United States and China has not collapsed, but it has grown about 30% slower than trade between these countries and the rest of the world.

Russia’s invasion of Ukraine

The recent decline in trade between the United States and China occurred in two stages, Mr. Ossa said. First when trade tensions escalated in 2018. Then when Russia invaded Ukraine, prompting the United States and its allies to impose tough sanctions and further overhaul global trade relations.

“There was a period when geopolitics had little influence on trade, but as uncertainty increases around the world, we see trade becoming more sensitive to these positions,” notes Stela Rubinova, economist at the World Organization Trade.

Some economists believe that bilateral data exaggerates the decline in US-China trade: like Hisun, the Chinese vehicle manufacturer, some multinationals have relocated assembly outside China, but part of their raw materials and their pieces always come from this country.

Additionally, some companies can transit their products made in China through other countries to avoid U.S. tariffs.

US statistics do not classify these products as imports from China, even though much of their value comes from there.

Mme Freund, author of a recent article on the subject, believes that US-China trade is “definitely falling, but not as much as the official figures indicate.”

The fact remains that geopolitical risks are pushing companies to look elsewhere, especially towards low-cost countries with stable trade relations with the United States, such as Mexico.

Foreign investment in developing countries fell 9% in 2023, but in Mexico it jumped 21%, according to the United Nations Conference on Trade and Development.

South Korea also has to deal with relations between the United States and China. Like Mexico, South Korea benefits from lower tariffs under a free trade agreement with the United States. In December, U.S. imports of South Korean goods reached a record high.

PHOTO DAVID WALTER BANKS, THE NEW YORK TIMES

South Korean battery maker SK On has opened a factory in Commerce, Georgia, and is building others in Georgia, Tennessee and Kentucky in partnership with Hyundai and Ford.

South Korean companies benefit greatly from President Joe Biden’s climate law. The U.S. government offers tax credits to buyers of electric vehicles, but it has set limits on the supply of Chinese parts for these vehicles.

Major specialists in batteries and electric car components, the South Koreans are carving out a special place for themselves in new automotive supply chains. Thus, the battery manufacturer SK On has invested 2.6 billion in a factory in Georgia and is building others in Georgia, Tennessee and Kentucky in partnership with Hyundai and Ford.


reference: www.lapresse.ca

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