China is now an advanced service-based economy and needs its own "China" to operate. And the United States needs it too.
In April 2023, China’s exports declined by 6.3% when compared to March. For the same month, Chinese imports were even worse, with an yearly decline of 7.9%. An untrained eye could attribute this decline in trading activity to a back-end effect of the zero-Covid policy last year. However, the reasons are much more complex.
First of all, China’s economy as a whole has already passed the shrinking effects of the zero-Covid policy. The first quarter of 2023 saw a GDP growth of 4.5%, higher than the best of expectations.
So why is China trading less with the rest of the world?
The “world’s factory”
“Made in China” is one of the most famous labels in the world. It is often associated with a cheaply manufactured product, often outsourced by big Western corporations. For decades, China exploited its cheap labor cost to attract rich companies into their nation. A strategy that worked brilliantly.
China became the second largest economy in the world thanks to its labor force. Its vast economic growth in such a short period of time is unprecedented in world history. During the first 20 years of the XXI century the West looked at China with admiration, which soon turned to fear.
But as Chinese GDP and overall quality of life improved, its labor cost rose. China’s economy gradually switched from being manufacturing-based to being service-based, a natural evolution of every developed country.
China’s working force has become sophisticated enough to attract highly advanced corporations. For example, Tesla’s biggest factory is now in Shanghai, as the world electric vehicles market is looking to China for new expansions.
This not only meant an end to cheap Chinese labor, it also meant China needed its own “China”. A developing country where labor was inexpensive enough to start outsourcing China’s own manufacturing needs.
And, of course, the same need was shared by all those Western corporations that used to rely on China for cheap labor.
“Made in Mexico”
The country that is gradually replacing China as the world’s factory also mirrors the new geopolitical tensions. The United States and its corporations could not rely on China anymore as Beijing was becoming Washigton’s main foe.
The US needed a country with Western values and with a developing economy. And, luckily for them, they found one right on their southern border.
Mexico presents the perfect economical and geopolitical conditions to become the new source of cheap labor for the United States. It’s a developing economy within Washington’s sphere of influence and with overall Western values.
In fact, despite its lack of major trading ports, Mexico is also becoming China’s “China”. Giants like Huawei or Hisense opened cheap-labor factories in Mexico, right next to American ones.
While the Mexican government still has to recognize the major advantage at their hands, focusing most of its energies on the war on drugs, this new economic trend will hardly be reversed.
Recognizing the newly found geopolitical importance of Mexico is crucial to understand the new world balances.
