Global Manufacturing Shift: China, Mexico, and the Impact on U.S. Supply Chains

The Nearshoring Trend and Mexico’s Role

Nearshoring, the strategy of relocating production closer to primary consumer markets, has become increasingly popular among businesses aiming to reduce transportation costs and supply chain risks. Mexico, with its advantageous geographical location and competitive labor costs, has emerged as an attractive destination for manufacturers.

According to a report by FrontierView, Mexican presidential candidates are acutely aware of nearshoring’s importance to the national economy. However, from the latter half of 2024 through 2025, Mexico faces challenges such as political transitions, infrastructure limitations, and resource constraints, which could impact its ability to attract foreign direct investment (FDI).

Chinese Companies in Mexico

Amid U.S.-China trade tensions, many Chinese companies are expanding production overseas to avoid tariffs and gain access to the U.S. market. Mexico has become an ideal choice due to its proximity to the U.S. and its trade agreements.

Chinese automaker MG Motor has announced a $1 billion project to build a car manufacturing plant in Mexico, aiming to establish the country as a hub for manufacturing and distributing vehicles across Latin America. Similarly, BYD, a leading Chinese electric vehicle producer, is seeking a site to build a factory in Mexico, with plans to produce 150,000 vehicles annually.

Impact on U.S. Supply Chains and Economy

The establishment of Chinese manufacturing facilities in Mexico brings economic benefits to Mexico, including job creation and increased investment. However, it puts the U.S. in a complex position. Products manufactured in Mexico can be labeled "Made in Mexico" and benefit from trade agreements, allowing Chinese companies to access the U.S. market without facing high tariffs.

U.S. lawmakers have expressed concerns over Chinese companies using Mexico as a "backdoor" to the U.S. market and have called for increased oversight and adjustments to trade policies to safeguard national interests.

The shift of Chinese manufacturing to Mexico underscores profound changes in global supply chains and economic relationships between nations. While this trend offers economic advantages to Mexico, it poses challenges for the U.S. in protecting trade interests and economic security. To address these issues, the U.S. must reassess trade policies and strengthen cooperation with Mexico to ensure balance in the trilateral economic relationship.