Understanding What Is Happening To US Businesses In Mexico And China

As tensions between China and the United States continue to rise, the coronavirus pandemic is forcing a significant number of U.S. companies to rethink and re-strategize their far-flung supply chains. As a result, Mexico has come to the forefront by giving the world’s CEOs good reasons as to why they should move their companies there instead to China.

According to the Mexican government, their relocation initiative is a campaign designed to convince companies that they would experience a surge in profit margins by moving their production to Mexico. Mexico is a signatory to the North American Free Trade Agreement which created wide open borders with the U.S. and Canada. 

Also, it’s proximity to the United States means it can offer much lower supply chain costs than most other countries. Furthermore, Mexico has managed to create a warmer trade relationship with the U.S. despite various political challenges.

What Is Happening To US Businesses In Mexico And China?

In the past few years, China’s trade war with the U.S. has led to trade disruption in much of the world. But with the way things are shaping up, Mexico is now set to be the overall winner. 

Despite renewed hope among investors that there would be a peaceful conclusion to the issues with China, the trade conflict between the world’s two largest economies shows no signs of ending.

Where Mexico Comes In

According to Geopolitics analyst and the author of Disunited Nations, Peter Zeihan, Mexico is currently in the best position to secure new business from the fallout between the U.S. and China. One of the reasons for this is that the country’s manufacturing capacity is cheaper and more efficient than that of China and Canada. 

As a result, Mexico can scoop up a disproportionate share of the companies that relocate their manufacturing to the North American market. On top of that, the general degradation of the global trade hierarchy has placed Mexico in an even more privileged position to access the American market. 

All these factors mean that the country’s economic future looks very bright.

In late December last year, the San Diego Union-Tribune reported that companies operating in the Tijuana region in Mexico were already beginning to enjoy some of the benefits from the U.S.-China trade war, such as an increase in employment numbers, especially in the aerospace industry, and a decline in commercial property vacancy rates.

Mexico Vs. China

Mexico also has several other distinct advantages over China as a manufacturing partner. They include, but are not limited to:

Ground Transportation

The U.S. can import goods from Mexico using ground transportation, which only takes a few days or even hours. This is an option that U.S. companies manufacturing goods in China cannot enjoy since everything has to come by sea or air, which will often take weeks and certainly be much more expensive.

Stronger I.P. Regulations And Protections

Over the years, it has become common practice for manufacturers in China to replicate United States product designs. However, in Mexico, the intellectual property laws tend to be much more robust, making it far less likely for such scenarios to occur. If it does happen, there is legal recourse.

Language

Spanish is the second most frequently spoken language in the United States, making it relatively easier for U.S. companies to conduct business in Mexico.

Time-Zone

Mexico operates in the same time zones as the United States: Central, Pacific, Mountain, and Eastern. This means that U.S. companies working in the country can do business in real-time.

In Summary

Once U.S. companies finally begin to move their supply chains out of China, it will be very difficult, maybe even impossible, for China to get back their spot as one of the offshore leaders of the global marketplace. There is also no denying that this shift to Mexico was facilitated by the U.S. trade war with China, the United States-Mexico-Canada Agreement (USMCA), and the coronavirus pandemic.