Mexico, winner of the geopolitical battle between China and the United States | Economy and business

Last week's headlines were read with some surprise: Mexico has overtaken China as the top exporter to the United States. According to official data released on Wednesday, this Latin American country has become the most important trading partner of the United States, which purchased the largest quantity of its goods and services from its neighbor in 2023. The reasons, however, have less to do with see with Mexico. and it has more to do with current geopolitical tensions. The United States wants to stop buying from China and Mexico is fighting for that piece of the pie.

In 2023, U.S. purchases of Chinese goods reached $427.2 billion, a 20% decline from 2022. In contrast, Mexico exported $475.6 billion worth of goods to the United States. , an increase of 4.6% compared to the previous year. This was enough for Mexico to become the top exporter to the United States, supplanting China for the first time in 21 years.

The shift is the result of a years-long trend fueled by the growing and increasingly bitter rivalry between China and the United States. Due to this rivalry, the two countries have imposed heavy customs duties since 2018 and Washington has sought to gradually diversify its suppliers, reduce its purchases from the Asian giant and increase its trade with countries considered more aligned on the plan. ideological. Additionally, the United States has had to deal with the logistical consequences of the Covid-19 pandemic and the bottlenecks it has caused in global supply chains.

The share of Chinese products in total US imports also decreased: they stood at 13.9% in 2023, the lowest level since 2004. In 2022, they reached 16.3%.

The trend could continue even more sharply in the future: President Joe Biden's administration is considering further tariff increases on Chinese products such as electric vehicles, solar energy equipment and less advanced semiconductors. The final decision is expected to be made in the first half of this year.

Since China's entry into the World Trade Organization in 2002, the United States has gradually increased its imports from the Asian country, which has quickly become the world's factory. It was a beneficial relationship for both countries: American consumers saw the cost of products, from doors to T-shirts, visibly drop, while exports fueled prodigious economic growth in China, which exceeded both figures for years. In 2017, at the peak of imports, Chinese products accounted for 21.6% of total U.S. imports.

But the situation reversed in 2017 when Donald Trump came to power. After an initial honeymoon, during which Trump was warmly welcomed by President Xi Jinping in Beijing and even received a dinner in the Forbidden City, a gesture reserved for very few people, a trade war broke out in 2018.

Each country has increased tariffs on other products. The geopolitical and economic rivalry has extended to the technology sector. The so-called era of decoupling has begun, with each party attempting to separate their supply chains and, above all, their respective technology sectors.

The Covid-19 pandemic has forced a pause in this trend. In 2020, as the world locked down against the virus, and in 2021, as the first vaccines began to be administered, Americans rushed to buy all kinds of products made in China as they adopted a new way of life, including remote working. Computers, office supplies, large television screens, toys and gym equipment are some of the products that have been acquired.

In 2022, U.S. imports from China were still rising due to problems in supply chains. Once resolved, companies issued orders to replenish their stocks.

The 2023 data now indicates a return to the trend seen during the Trump era. Neither country has withdrawn its tariffs. Distrust between the two governments is still present, despite small steps aimed at stabilizing the relationship, such as the face-to-face meeting between Biden and Xi in San Francisco last year. Additionally, since 2018, various companies have shifted production from China to other countries, such as Vietnam and Mexico.

But the US Federal Reserve has warned that reduced trade between China and the United States could impact inflation in the United States. Some analysts say shifting production of goods previously purchased cheaply from China to the United States or other third countries could increase inflation by reducing labor market availability.

In turn, Chinese companies are counterattacking by changing the way they do business with the United States. Some have chosen to move part of their production to Mexico, such as Hisense, which in 2022 began manufacturing refrigerators and other appliances for the North American market at a $260 million factory in Mexico. Chinese automakers JAC Motors and SAIC Motor have also launched or announced plans to build assembly plants in the country.

A similar trend was detected in Vietnam, according to the report. Geopolitics and geometry of world trade by the McKinsey Global Institute. Various Chinese companies have invested in factories in the neighboring country. For some observers, the U.S. shift toward imports from Vietnam represents a rerouting of trade from China, with limited value added to Vietnam. According to this report, China and the United States remain interconnected, but supply chains have become longer and more opaque.

Mexico competes directly with Vietnam, says Alberto Villarreal, director of Nepanoa, a Chicago-based company that helps foreign companies expand in Latin America. Mexico is not going to supplant all these imports from China, he says, and it competes globally for these exports with other Asian economies such as Vietnam, the Philippines, Singapore, which is a much more developed country, and with India.

Mexican entrepreneurs in manufacturing, logistics and agriculture have acted in coordination with some state governments, Villarreal says. They go on business trips, visit different countries with different investors, he explains, and these are the industries that are at the forefront of U.S.-Mexico relations.

But Mexico is also in competition with the United States. Since Barack Obama's administration, the White House has worked to return manufacturing jobs that were offshored during the globalization boom. These efforts aim to strengthen employment and reduce the country's dependence on imports.

Mexico has natural advantages and also offers greater stability compared to emerging markets in, for example, Eastern Europe or the Middle East. That said, relations between Mexico and its northern neighbor can be difficult. The arrival of hundreds of thousands of undocumented migrants at the US-Mexico border is proving to be a source of tension, as is the trafficking of fentanyl, which has sparked a national health crisis.

Businessmen are paying close attention to the elections that will take place this year in each country, Villarreal says. We will hear a lot about migration, we will hear the word fentanyl a lot, and we must not forget that the free trade agreement will be updated in 2026. Businessmen and investors are taking note, while recalling that the geopolitical conflicts occurring around the world have a positive impact on relations between Mexico and the United States.

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