Geographically close to the United States, competitively available labour and the USMCA trade agreement have been driving Mexico’s sales of manufactured goods as an alternative to China.
But it’s true Mexico can no longer supplant Chinese manufacturing and the narrative fails to mention an important one: that its own industrialization is still greatly reliant on Chinese machinery, electronic parts, industrial materials and intermediate goods.
Companies are looking at nearshoring as a course of action and Mexico is realizing that it’s not required to turn away Asian supply chains for nearshoring to the U.S. consumer base. Its manufacturing plans and reliance on China, then, are going concurrently.
Mexico Manufacturing Growth Still Depends on Chinese Inputs
Mexico’s competitiveness within the manufacturing sector is tightly related to the availability of low cost parts and manufacturing machinery. The value of machinery, electronics, electrics and manufacturing components used in Mexican factories comes to a significant proportion from China.
Mexico received cotes de close to $133.2 billion from China; that makes it one of the biggest suppliers of Mexico. Such imports are not only a consumer good, they are also contributing in terms of production capability in several industrial fields. Replacing these suppliers overnight will become more costly to procure and could affect manufacturing operations.
Mexico Nearshoring Cannot Eliminate China Supply Chains
Multinational enterprises have increasingly expanded their manufacturing footprint in Mexico in response to nearshoring trends, to be closer to the North American market. But moving assembly plants doesn’t entail the entire supply chain moving.
Other industries, such as electronics, automotive parts and industrial machinery continue to come out of Asia. An International Monetary Fund report that looked at trade flows in Mexico discovered that as Mexico exports more to the U.S., it imports more from China of intermediate goods.
This is a good blueprint on how nearshore Mexican manufacturing can utilize but not detach itself from the Chinese industrial chain.
Mexico China Trade Creates Strategic Economic Contradictions
China’s presence in North American supply chains is a concern for Western countries, while maintaining access to Chinese industrial supplies is a precarious proposition for Mexico.
Washington has voiced concerns about tariff avoidance, Chinese firms in Mexico. Additionally, Mexico has looked at imposing tariffs on certain products from Asia, particularly China. But, if such imports are curtailed and no competitors can be found for such products, manufacturing costs may increase.
The problem is not just Chinese involvement, it is how to make sure other suppliers can compete with Chinese suppliers in terms of the supply cost and quality for industrial use of other suppliers’ goods.
Mexico Manufacturing Future Requires Supply Chain Diversification
For the long run, Mexico’s manufacturing policy should be designed in order to increase domestic manufacturing, while continuing to not view the concept of economic diversification as full disconnection from China. Investments in semiconductor capabilities, semiconductors production, machinery and industrial research would begin to lighten outsourcing dangers over time.
Relationships with North American, European and Asian suppliers would also offer other sourcing opportunities. The reality is that China continues to be a key contributor to the global manufacturing sector and Mexico should not ignore this fact.
To finally secure the success of the country’s industries, it will be necessary to strengthen their capacities and preserve the country’s links to international chains of industries that keep its factories competitive.
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