How Mexico is Becoming the New China

At 12:01 AM on July 6th, 2018, this short line was added to Chapter 99 of the Harmonized Tariff Schedule of the United States. With that, new pneumatic tires, of rubber, of a kind used on aircraft; parts of stock pumps imported for use with machines for making cellulosic pulp, paper or cardboard; machines for mixing mineral substances with bitumen; spherical roller bearings; lithium primary cells and primary batteries; fuses, for a voltage not exceeding 1000 volts; and some 278 other products wo

uld now be subject to a 25% import tax when coming from China to the US. This small tweak, and the $36 billion of goods it would impact, was the first volley in what’d later be known as the US-China trade war. The next rounds came quick: just weeks after, the Trump administration initiated a smaller, second package, covering some $16 billion in goods, then, in September, after a Chinese response, an absolutely massive package of 10% tariffs on some $200 billion. Finally, after further Chinese ac

tion, these rates were raised to a crippling 25%. Now, a Chinese-made space heater that might’ve sold for $48 would cost $60 or, more likely, a US distributor would look for suppliers from other non-tariffed countries so that they could get prices back down to $48. The ultimate net effect of this was an 8.5% reduction in trade from China to the US, and a 26.3% decline in the reverse. But perhaps more relevantly, this spat dethroned China from its perch atop the list of US trading partners. Now r

anking higher was Canada, in the second spot, and Mexico, as the new largest. But the trade war would be far from the end of issues keeping China from the top. The next emerged not out of Washington, of course, but from Wuhan. After headlines were dominated by the news of a mystery novel Coronavirus in China, then by COVID’s global spread, then by the world’s descent into lockdown, then by breakneck vaccine development, then by the shot’s wide-scale roll-out across the developed world, summer 20

21’s headlines were dominated by supply chain chaos. Armed with lockdown savings but still facing barriers to spending them on restaurants, concerts, and plane tickets, American consumers started buying lots and lots of things—physical, real-world products. COVID, however, was still exerting influence meaning dockworkers and truck drivers in California were still getting sick, while their counterparts in China, Vietnam, or India were still largely unvaccinated or vaccinated with less effective s

hots, meaning stricter social distancing and lockdown restrictions were still in place, blunting shipping and manufacturing itself. The net effect was what made it to the headlines: factories struggled to produce fast enough, ships sat offshore for weeks waiting to get unloaded, American store shelves sat empty as stock simply could not come fast enough. By late 2022 the trans-pacific capacity crunch had largely dissipated, supply and demand had equalized, and container rates had nearly returned

to 2019 levels, but supply chains were never able to fully repair as Russia’s invasion of Ukraine wreaked havoc on global trade. Sanctions cut off supply to key metals, energy and food costs rose globally, and marine and air cargo was rerouted to avoid the belligerent nation. Meanwhile, today’s China is certainly not the China it used to be. While perhaps a truism, up until recently, rapid economic development was the decades-long norm, but the nation’s now entered a new era. In the most concis

e narrative, one single factor is attributed as the ultimate source of China’s unprecedented economic ascent: low-cost manufacturing. China was a place where foreign firms could effectively offshore manufacturing and save massively through low labor costs, but in many ways, the country’s industrial sector became a victim of its own success. In twenty years the nation’s GDP per capita rose ten times, and with that, quality of life improved massively. Major Chinese cities like Beijing, Shanghai, o

r Shenzhen started featuring the same shops, restaurants, and hotels as Tokyo, London, or New York; the luxury goods market exploded as an unprecedented number of millionaires and billionaires were minted; and a genuine middle class developed, living a similar quality of life as those in the US, Europe, or any developed nation. But to the outside, to the companies that had previously offshored to China, this increase in purchasing power meant a dollar didn’t go as far anymore within the People’s

Republic. Wages rose, and so too, in step, did manufacturing costs. The peak of inbound foreign direct investment to China has long passed as multinational enterprises have now focused elsewhere for the lowest cost manufacturing, but this was of little concern to the nation as they were able to parlay the wealth generated from this era into developing an impressive array of home-grown businesses. There are behemoth e-commerce platforms like JD.com and Alibaba; sprawling tech conglomerates like

Tencent and Huawei; unicorn start-ups like DJI and Didi; even the first non-American social media platform to attain global mainstream adoption with ByteDance’s TikTok. But TikTok is a rare exception: overwhelmingly, the business China does with America is not through services—it’s with physical products. Physical products need to physically travel to the American end consumer, but the problem that’s now coming into focus is that America is really, really far from China. Shanghai is the world’s

busiest container port while the combination of Los Angeles and Long Beach is the US’, so trips between the two are about as common as they come, but they’re no small feat. From the moment the Chinese coast disappears behind, a vessel won’t see Los Angeles for another eighteen days, assuming everything goes right, which it often does not—even with massive improvements since 2021’s supply chain chaos, major container carriers only range between 50% and 60% schedule reliability. Offshoring, just-i

n-time manufacturing, and even globalization itself are all terms and phenomenons that largely developed in the past thirty years. In fact, some experts consider the fall of the Berlin Wall as the start of the era of peak globalization. But this era might, in retrospect, be considered bookended by the trade war, COVID, and the Russian invasion of Ukraine. The world has returned to a more fractured state and it’s worth remembering that prior to this conflict, Russia’s relationship with Europe and

the US was not all that different from China’s today. Diplomatic relations are maintained, but they’re tense. Certain respected western leaders now speak of conflict with China—likely spurred by an invasion of Taiwan—as inevitable. So that’s to say, the world is already less globalized than it was in 2017, and there are certain, concerningly possible events that would make the trade war, COVID, and the Russian invasion of Ukraine look like warmup laps. So, 2023, in the world of logistics, is ma

rked by a consolidation of concerns: COVID and Ukraine exposed the vulnerabilities, and there’s widespread concern that these could only be the start. The consensus, therefore, is that there are essentially two options: one can fortify the globalized supply chain through building more slack in the system—ordering components earlier, keeping more in stock, manufacturing inventory earlier—but this comes with a very real, surprisingly significant cost. The other option is to remove the risk, remove

the physical and political gulf between the manufacturer and the market, and this option has proved surprisingly popular. All that’s needed is an alternative, another developing country on the other side of the Pacific where wages are low, and the workforce is large—a country like Mexico. From a manufacturer’s point of view, Mexico’s not perfect. Of 180 countries ranked by the Corruption Perception Index, Mexico comes in at 128th. Of the 190 ranked by Ease of Doing Business, Mexico ranks 60th.

Of the world’s fifty busiest sea ports, Mexico is home to none—its largest, the port of Manzanillo, outpaced nearly six times over by that of Los Angeles and Long Beach. Further complicating things, it’s hard to get around Mexico—the jagged Sierra Madre ranges run from the country's northwest to its southeast, parched deserts define much of the country’s north, and dense forestry covers much of its south. The roads, rails, and bridges that cross these mountain ranges and cut through desert and f

orest alike? Well Mexican infrastructure’s getting better, but it still lags far behind China’s. But complicated perceptions, outdated assumptions, and difficult internal transportation networks aside, Mexico is blessed with one simple geographic gift that no country other than Canada can lay claim to—it shares a border with the world’s largest economy. While the Rio Grande river isn’t actually navigable, it’s home to one of North America’s most valuable ports. Connecting Texas and the Mexican s

tate of Nuevo León is the World Trade International Bridge— it’s strictly commercial, 8-lanes wide, it sees over 6,000 northbound trucks cross it every single day, and since its construction in 2000, it has never been busier. As of 2022, the inland port ranks first among American points of entry in trade value, and all this increased importance and stacking traffic is by and large due to what manufacturing in Northern Mexico has to offer that China simply can’t—speed and flexibility at low cost.

About 150 miles or 250 kilometers down Mexico’s highway 85 and just outside the small city of Salinas Victoria, is this—a barren dirt lot. Except, it’s not actually a barren dirt lot, this is Hofusan Industrial Park—a 200-acre complex constructed by a private Chinese-Mexican partnership designed to pull in Chinese manufacturers. It’s so new, with construction beginning in 2017, that satellite maps have yet to capture the development, but it’s there. And it’s bold. The master plan is to lure ove

r 100 Chinese manufacturers to the gated park, build out a residential area to house employees, and establish a host of services—from Chinese restaurants to hotels and hospitals. The idea is to build out a little slice of China where labor is stable and Chinese executives and operators can feel somewhat at home. With much of the land still resembling a construction site six years in, the sparkling master plan is far from a reality. But it is trending in the right direction. Hisense, an electroni

cs manufacturer, has made the move. So too have furniture makers Kuka Home, Sunon, and Manwah. And neighboring them are more Chinese manufactures: Fawer, Skyish, Lizhong, Asenstar, Bellinturf have all bought into the project. The incentives, especially since the opening of the trade war that’s made manufacturing in Mexico more cost competitive, are just too strong. Even without the restaurants, shops, and housing that’s supposed to make the move more appealing and the transition smoother, Chines

e companies are taking the leap—inside the gates of Hofusan Park, and outside them too. The tech company Lenovo, for instance, has been manufacturing just outside of Monterrey for over a decade. And in 2022 alone, 44 separate Asian companies opened new manufacturing spaces in Mexico, with 9 of the 10 largest being Chinese-owned, and 7 of them opening in the state of Nuevo León. Zooming out from the state, this is a graph of Chinese investment in Mexico: the skyward trajectory of investment is si

mply unmistakable. While concerns over security and capable infrastructure still loom, the deal is too good to wait on. Of course, a few dozen companies relocating across a decade-plus doesn’t necessarily in itself signal the rise of Mexico as the world’s factory or that China’s relinquishing the role or that this is the end of offshoring as we know it. Right now, the sample size is small. But the reasons companies are moving to Mexico aren’t going away, and the appeal of manufacturing in Mexico

extends beyond China. While China might be new to northern Mexico, Japan isn’t, South Korea isn’t, and the US isn’t. To industrial manufacturers, the region’s value has been well understood for decades. Years before the establishment of NAFTA, Mexico worked to maximize the appeal of its lower costs of labor and proximity to the US by setting up the Maquiladora system—essentially low-cost, tax-advantaged factories owned by foreign companies that state officials hoped would tamp down unemployment

and entice foreign investment. With the arrival of free trade agreements, these factories exploded in number. Northern Mexico first experienced the invigorating arrival of auto companies like KIA, Toyota, BMW, Ford, and Audi among others. Then came the rest, as Lego, Samsung, LG, 3M, GE and countless other recognizable brands moved into the region. Their collective arrival transformed the Mexican economy. In a 2012 analysis of Maquiladoras, some 5,055 existed across the country, mostly in the n

orth, and the factories employed just over 2 million Mexicans. The value of these turnkey factories persist too, as they’ve helped to counter narratives of Mexican states being too dangerous and unpredictable for business, to places ripe and ready to establish a new manufacturing hub for companies spanning the globe. What Mexico has had to offer in recent decades has proved too good to pass up on. The factories already exist; the wages—though higher than some eastern developing countries—are low

; and by being here, not only are tariffs now out of the picture, but companies are also relocating to a western business environment where patent and IP protection is stronger, political risk is lower, and the negative optics of offshoring are minimized. Simply put, beyond what’s pushing Chinese manufactures abroad, Mexico itself has developed tremendous pull. Automotive and electronic manufacturers from the world over made Northern Mexico a home away from home decades ago, fundamentally transf

orming the Mexican economy and creating a mutually beneficial system for the country and company that shows few signs of slowing. China’s simply the most recent to recognize the profound appeal. So it’s got the geography, it’s got the labor, it’s got the demand, seemingly all the pieces are in place for an economic explosion except for, critically, a plan. President López Obrador and the federal government have been largely absent in the industrial sector—most of the work to actually attract and

incentivize the manufacturing industry has occurred on a state level. States like Nuevo León have long focused on developing their manufacturing industries—building industrial parks, offering financial incentives, coordinating with incoming manufacturers—and it’s worked. Despite sitting number seven in terms of population, Nuevo León is third on GDP—beaten only by Mexico City and the state that surrounds it. That means the state’s per capita GDP is similar to that of Malaysia or Greece, and Nue

vo León is generally one of the safest Mexican states—on par with many areas of the US. For all these reasons, Monterrey has become the country’s second largest center of wealth, after the capital, featuring the tallest skyscraper in Latin America, one of the most modern metro systems in North America, and a dazzling array of upscale hotels and restaurants. Other northern Mexican states have followed suit, working to develop their own US-focused manufacturing industries, but still, inextricably,

the country’s current leadership fails to grasp the opportunity of the moment. The president has been widely criticized for his lack of focus on the country’s industrial sector during what could turn out to be its most pivotal years. In fairness, though, he’s been focused on fighting crime. This is justified—the country is experiencing a crippling wave of violence that has pushed its homicide rate up to the eighth highest in the world—but he’s still been largely ineffective at blunting it. The

US is also worried about crime in Mexico because of its downstream effect. Republicans surveyed ahead of the 2022 US midterms indicated that immigration was their number two issue, behind only the economy. American conservatives in particular are worried about the exceptional number of migrants crossing the US-Mexico border through both official and unofficial channels, and a major impetus of this surge is violence. Of course, taking it back one step further, a major impetus of violence is pover

ty—that’s a relationship that academics have established time and time again—and poverty is also a driver of immigration itself. Therefore, you improve the economy, you improve the violence, you reduce the volume of immigrants at the border. Mexican manufacturing is rarely taking the place of American manufacturing these days—rather, it’s taking the place of Chinese manufacturing, so it’s trading a distant country with a dubious record respecting human rights and intellectual property for a cult

urally and politically allied neighbor. This serves the US’ global goals and then on top of that, the economic boon the phenomenon spurs helps solve other American goals. It is, through and through, a virtuous cycle, so the only shame is that Mexican and American federal authorities have yet to fully recognize that. This industry can be a solution to the problems that officials on both sides say they need to focus on first, but unfortunately, there’s been a long history on both sides of attackin

g symptoms, rather than actual causes. Mexico is already a powerhouse, middle-income industrial economy with incredible geography and an enormous educated labor pool and it seems like it’s finally getting some of the economic expansion it deserves, but this has largely happened in spite of ineffective infrastructure, in spite of crippling violence, in spite of a complacent government, in spite of so many constraints. So a future where Mexican manufacturing grows “thanks to…” something is tantali

zing. Just imagine a future where Mexico recognized its potential as strongly as China did four decades ago. Some of the most important issues of the moment are also some of the most politicized ones, and media organizations play a part in shaping that reality. Advertising revenue is driven by clicks, clicks are driven by emotion, and emotion is driven by appealing to what people care most about—that’s a big reason why media outlets are more biased than ever. You get a conservative to click by f

eeding them the issues conservatives want to hear about, you get a liberal to click by feeding them the issues liberals want to hear about which, unfortunately, is just a better monetization strategy than accurately portraying reality. We actually made a whole video about this exact issue and it’s something I encountered with this video when trying to get accurate information about just how significant the current surge in immigration is. But to fix that I turned to was our sponsor, Ground News.

It’s kind of an amazing concept: each day, they process nearly 60,000 news articles and aggregate multiple stories on the same subject from multiple outlets and give you a sense of the political bias and factual record of each source. This way you get an idea of how the same reality gets portrayed differently depending on who’s writing about it. Another feature I love is Blindspot—it shows you the stories that the other side of the political spectrum is talking about but that you likely haven’t

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of my favorite ways to consume the news as I want to make sure I’m using that time to actually learn about the world—not just to make myself feel good by reading stories designed to feed my own political bias. So if you want to add this crucial bias-correcting layer to your media diet, click the button-onscreen or in the description to sign up today and get 30% off our Vantage subscription, which is an offer that is exclusive to Wendover viewers