In all your gift buying this season, how much of what you purchased was “Made in America”? Often, some part of a product comes from somewhere else in the world — China, Vietnam, Malaysia or the Philippines.
But more products are being manufactured with parts from neighboring Mexico. It’s called “near-shoring,” and it’s the latest example of corporate America moving its production of goods and services closer to home to get-around reliance on China.
In 2021, hundreds of foreign companies announced they were expanding or building export factories in Mexico, including ones you have heard of such as Unilever, Walmart and Mattel, and some you might not have like Dana Inc. and Denso Corporation. General Motors just announced 5,000 new jobs opening at its plant in northern Mexico.
To give you an idea of the scale, U.S. companies are expected to invest $40 billion in Mexico between now and 2024.
During the first 10 months of last year, Mexico exported $382 billion worth of goods to the United States, an increase of more than 20 percent over the same period in 2021, according to U.S. Census data. Since 2019, American imports of Mexican goods have swelled by more than one-fourth.
In 2021, American investors put more money into Mexico – buying companies and financing projects – than into China, according to an analysis by the McKinsey Global Institute.
The phenomenon of relying on our neighbor to fill orders for American goods was predicted more than decade ago in a report by the National Bureau of Economic Research, which estimated in 2010 that Mexico could add as much value in the manufacturing process of countries in East Asia.
But it took a global pandemic, supply chain nightmares and a deterioration in U.S.-China relations to force the move south.
When President Trump imposed harsh tariffs on China in 2018, to reduce the U.S. trade deficit with China, many thought they would disappear with the election of a Democratic administration. But the tax on over 10,000 Chinese goods has remained in place as President Biden has sanctioned China and worked to reduce its competitive edge in technology.
China’s “Zero COVID” policy has also pushed nations like America to look around the world for other places to help with manufacturing. The growing rivalry between Washington and Beijing may define the year ahead, particularly as a COVID test requirement for Chinese travelers to the United States takes effect, and the new Congress promises to investigate the origins of COVID-19 in China.
Most Americans are not paying attention to trade. But they know that products have many components and sources and that we can’t make things all by ourselves anymore. And, interestingly, many more of our citizens are relocating to Mexico than ever before in a remote work sea change. Why? It’s warm, it’s cheap and it’s close by. And you can work there for up to six months on a tourist visa.
The big question now is whether Mexico can rise to the occasion as a new partner given its own internal difficulties. Its recent prison outbreak, its immigration problems at the border and its on-again, off-again economy, which has observers worried about putting too many eggs in the Mexican basket.
The reliance on Mexico is long overdue, based on the map alone. But there still needs to be a trade strategy for the Asia-Pacific region given the need for computer chips and the strategic value of trade in a major export market. If China senses that we are pulling away, even though we say we are not decoupling, they will look for other options as well.
With the global economy so unsteady, there is no guarantee that the Mexican peso will stay stable in 2023. But after 200 years of diplomatic relations, it is good to see a good neighbor making strides.
Tara D. Sonenshine is former U.S. under secretary of state for public diplomacy. She is the Edward R. Murrow Professor of Practice at the Fletcher School of Law and Diplomacy at Tufts University.