Home Business-newBusiness Is Mexico the big economic winner from growing US-China tensions?

Is Mexico the big economic winner from growing US-China tensions?

by Yucatan Times
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Sparks fly as laser slices through metal in a factory in Mexico, which is preparing for a wave of foreign investment thanks to heightened tensions between the United States and China.

Geopolitical frictions and supply chain gridlock during the Covid pandemic have prompted a growing number of companies to move manufacturing operations to the doorstep of the world’s biggest economy.

Last year, Mexico replaced China as the top exporter of goods to the United States, helped by the trend known as “nearshoring” or “friend-shoring.”

According to Humberto Martinez, president of the Manufacturing Association Index, there is a “boom” in companies relocating to Mexico.

His organization expects around $9 billion of foreign investment in Mexico’s export manufacturing industry this year, predicting a “new world economic order.”

Lower labor costs, tax incentives, and a North American free trade deal that took effect in 1994 have long lured companies south of the US border.

Now, fears of a Cold War between the United States and China have added to the appeal of Mexico, which will hold elections on June 2 that are expected to produce its first woman president.

Both of the two main candidates have touted the potential benefits of nearshoring.

– ‘Privileged location’ –

A new golden age appears to beckon for Mexico’s “maquiladoras” — factories that for decades have been processing and assembling imported materials and components, then sending them back to the United States.

“We’re in a privileged location due to our proximity to the border to be able to export to the main market, which is the United States — the largest market in the world,” said Juan Jose Ochoa, director general of Aztec Technologies in northeast Mexico’s Monterrey.

“Political and economic issues caused a lot of productive capacity to move from the United States to Asia more than a decade ago. And finally, for reasons of international relations, much of that capacity is returning,” he said.

Nearby, workers wearing hard hats and safety glasses used laser cutting machines and other high-tech equipment to process metal for the company’s clients, which include US corporate giants John Deere and Honeywell.

“Now there are many companies that are setting up here. We know this because many of them knock on the door so that we can supply them with parts,” Ochoa said.

Foreign direct investment in Mexico hit a record high of more than $36 billion in 2023, 38 percent of which came from the United States, according to the economy ministry.

The nearshoring boom is more than just hype, “it’s a reality,” said Juan Pablo Garcia, head of CAINTRA, an organization in Nuevo Leon state that represents several thousand companies.

TYT Newsroom

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