Mexico Overtaking China as Global Industrial Power

July 24, 2014

For decades, China was known as the top location for cheap labor and cheap manufactured products, but things have changed in recent years, and many Chinese products no longer are cheap. But competition from Mexico manufacturing is proving good, affordable products are available much closer to the United States.

Products coming in from China have grown in cost for many reasons. The energy costs are at unprecedented highs. In the United States, the cost of a gallon of gas never has been so high for such a long and sustained period of time, and those higher fuel costs exist overseas as well. When vessels burning costly diesel fuel are needed to bring cheaper products from China, India and other far-away nations, those transportation costs are passed on to consumers. Add on the cost of importation taxes and fees, and the price of formerly cheap goods from China has gone up as well.

Mexico greatly has improved its industrial infrastructure in recent years and has grown into an international industrial power. The combination of low cost of living, favorable tax rates and lower energy and labor costs, and Mexico manufacturing is well-poised to overtake China as a primary source of goods for U.S. consumers. In a way, China is a victim of its own economic success and inadvertently creating greater business opportunities of U.S. companies that have manufacturing facilities in Mexico.

As China has grown in economic might over the past decade, so has the value of its currency. When the Chinese Yuan grows in strength relative to the dollar, so does its relative cost of goods. A few years ago, Chinese products had reached a point where they were of acceptable quality and much less expensive than U.S.-made counterparts. That enabled China to take large shares of markets involving generally smaller and more durable consumer items, from electronics to tools and computers. But with the Yuan growing in strength against the much weakened U.S. dollar, the cost of imported Chinese-made goods has gone up, making it possible for U.S.-based firms with shelter companies in Mexico to set up shop there and produce high-quality, competitive goods for the U.S. market.

Mexico has a reliable energy grid and infrastructure, relatively skilled labor market and enjoys the economic advantages of the North American Free Trade Agreement and other economic agreements with the United States and other nations located in the Americas. The trade agreements and ability of Mexico manufacturing facilities to produce quality products means the U.S. and Mexico can grow a much more beneficial international trade than currently exists with China.

Many traditionally-built and assembled products in the United States now are being assembled in Mexico. Traditional U.S. brands, like Fender guitars and Levi’s jeans, have expanded with shelter companies in Mexico in search of quality production at lower rates. And with big-box retailers demanding significant price breaks on extremely large orders, Mexico has become the go-to place for manufacturers to set up shop and continue doing business in the United States.