Despite U.S. trade tariffs and pandemic hurdles, China is still the world’s factory

Mexico’s steep rise in selling exports to U.S. markets in recent years has been supported by a simultaneous jump in Chinese exports to Mexico, according to an analysis by the Canadian logistics technology provider Descartes Systems Group.

The cycle started when the Trump Administration levied trade tariffs on Chinese goods in 2018, forcing American importers to pay the extra fees and pass their inflated costs on to U.S. consumers. In similar pursuit of an agenda to demand fairer trade policies between the two nations, the Biden Administration has kept most of those tariffs intact, to retailers’ and manufacturers’ disappointment.

The rising costs of Chinese goods were then exacerbated by pandemic disruptions to global supply chains. So in an effort to dodge those hurdles, an increasing number of companies from many nations soon began moving their sourcing and manufacturing activities out of China to alternative locations such as Vietnam, India, and Mexico.

However, Descartes’ study suggests that China never throttled back on its manufacturing, it just started shipping those goods and materials to companies with manufacturing facilities located in countries with friendlier trade relations with the U.S., chiefly Mexico. The report is titled “Growth in Mexico’s Exports to U.S. and the Rising Importance of the Chinese Goods Supporting It.”

“Mexico has moved to the forefront of U.S. global sourcing conversations since the previous administration began implementing tariffs on China and pandemic-induced trade flow disruptions. Chinese goods are following this shift in trade flows that is increasingly coming from Mexico into the U.S.,” Chris Jones, EVP Industry at Descartes, said in a release. “The analysis shows that Mexico exports to the U.S. grew 54% over the last seven years; however, Chinese exports to Mexico increased by 134% in the same period while the Mexican economy only grew 3.4%.”

Descartes concluded that those imports were most likely used to produce products in Mexico that were destined for the U.S. For clarification, Descartes added that this growth is being driven not just by Chinese companies, but by any multinational using Mexico as a lower-cost manufacturing source for U.S.-bound goods. As an example, the firm cited HP’s July announcement that it would shift the production of millions of consumer and commercial laptops from China to Thailand and Mexico this year.

Specifically, Descartes analyzed the top 10 two-digit commodity categories and their top 10 Countries of Origin (CoOs) over the period of 2016–2022 to see where U.S. imports from Mexico are growing and where Mexico is—or isn’t—gaining market share as a top CoO. The report then compared those top U.S import commodities to their equivalent Chinese exports to Mexico.