"Made in Mexico" will soon appear on our everyday products, as geopolitical tensions and economic shocks change the global economic outlook.
Mexico replaced China (and Canada) as the United States’ largest trading partner, pointing to a significant shift in the global economy. A practice known as “nearshoring” might hint at an increased regionalization of world trade.
The Federal Reserve Bank of Dallas reported the news. Mexico now amounts to 15.4% of the US’s trading share, with Canada falling behind at 15.2% and China in third place at 12%.
Ten years ago, in 2013, the US’s top three trading partners were China, Japan, and Germany. Since then, a trade war and a global pandemic completely changed the economic landscape.
After Covid impacted the living standards of the entire global population, a paradigm shift was taking place. A shift dubbed “nearshoring”: the practice of relocating production facilities in countries politically and culturally closer to home.
Michael Burns, a managing partner at Murray Hill Group, calls it “the next stage of globalization that is focused on regional networks.” With nearshoring, American factories can relocate their factories to cheap-labor countries without causing geopolitical headaches in Washington.
The reversal has been slow but steady. Technological companies like HP and Apple, whose strife with China increased after the country banned iPhones for government workers, are moving some production chains to Mexico. American and European carmakers, including Ford, Chevron, Volkswagen, and Mercedes-Benz are slowly relocating to Mexico.
“Made in Mexico”
The main reason for Western corporations fleeing out of China is the country’s labor forces getting more expensive. China sustained its unprecedented economic growth with cheap labor, managing to become the world’s second-largest economy.
As China became richer, so did its workforce, which started demanding to increase wages to cope with higher living costs and quality of life.
Now, China ranks extremely high in terms of labor costs. On the other hand, higher education also allows for more specialized manufacturing jobs, which is what made Germany today’s manufacturing juggernaut.
Unfortunately for China, the shift from low-pay, low-specialization jobs to high-pay, high-specialization jobs is happening too fast. This results in high unemployment, as educated Chinese cannot find suitable jobs in their country.
Mexico, on the other hand, not only has cheaper labor costs but is also geopolitically safer for the United States. China’s expansionism threatens the US’s global hegemony, and Washington cannot allow it, so American corporations have to adapt.
Mexican cheap labor, however, comes at its own costs. Mexico is a highly unstable country with entire regions governed by violent and corrupt drug cartels. Nearshoring cannot be completed until Mexico is a stable and completely self-governing state.
Once the Mexican government realizes the economic opportunities of this shift, however, all efforts will be made to turn the country into a safe haven for American companies.
