As Ties With China Unravel, US companies Consider Mexico Manufacturing

June 11, 2014

With labor costs, shipping delays and political tensions rising between China and the United States, manufacturers are heading south to Mexico to restructure their organizations within North America. Economists argue that the drive towards manufacturing in Mexico has never been stronger. The North American Free Trade Agreement (NAFTA) provides for virtually no duties or tariffs on trade between the two countries, and Mexico has more than forty trade agreements and treaties with other countries.

Since 2010, U.S. trade with Mexico has increased by nearly 30%. Last year, profits exceeded $507 billion annually. In addition, foreign direct investment (FDI) contributed to Mexican commercial development in FY13 reached a record $35 billion. In the near future, manufactured imports to the U.S. market from Mexico are expected to reach nearly 14% of total economic imports. While Mexico is increasing its share to the U.S. import market, China’s share has declined according to International Monetary Fund (IMF) indices.

In the current economic and political climate, continued divestiture of foreign investment into China is all but certain. Some of the Mexico manufacturing industries leading the renaissance include, sporting goods, consumer electronics, metal mechanics and consumer products.

In addition to the wave of manufacturers coming from China, the automotive industry is experiencing one of the largest expansions in history, all in the heart of Mexico’s “Bajio” region.  In no other area can this expansion be seen more clearly than in Guananjuato, Mexico. Other States experiencing high manufacturing growth are Queretaro, Aguascalientes and San Luis Potosi.

As Mexico attempts to outperform China, robotics are expected to play a significant role, especially in the technology sector.  United States companies manufacturing in Mexico have a major stake in this efficiency-bearing investment. The same is true of the software sector. Mexico’s advances in IT manufacturing have ushered in a next generation phase in developer applications used in enterprise.

Mexico has been outsourcing to China as well, maintain economists, yet the number of companies doing so has been far fewer. In spite of the cost savings afforded in outsourcing to China, Mexican factories have largely remained in operation, and avoided outsourcing intellectual property.