Is Canada Outpacing Mexico as the US's Top Trade Partner

 Before Elon Musk declared that he would invest billions of dollars in establishing his largest Tesla facility in Monterrey, Mexico, trade winds in the United States had already shifted south. In late 2022, Mexico's Economy Minister Raquel Buenrostro Sánchez stated that 400 companies had expressed an interest in relocating from Asia to Mexico. New industrial parks were sprouting up, many financed by Asian money, and investments were pouring in. According to Mexico's secretary of finance and public credit, approximately $13 billion in investments were secured by June 2023, with the majority going to vehicle or auto parts producers.According to new US Census data released this week, Mexico is the country's largest trading partner. In 2023, the United States traded $798 billion with Mexico, as the goods it purchased from its southern neighbor surpassed China and Canada. The growth in nearshoring - a catchy term that depicts corporations moving closer to their preferred market, in this case, the United States - has helped propel Mexico to this position.

"I am seeing a diversification of manufacturing. The calls began to come in from firms saying, don't want all my eggs in one basket,'" said Joshua Rubin, vice president of business development for the Javid Group, a Nogales, Arizona-based company that assists businesses in starting operations in Mexico. According to the Federal Reserve Bank of Dallas, Mexico first surpassed Canada at the beginning of 2023, with bilateral commerce between the neighbors totaling $263 billion in the first four months, as China's figures continued to fall. By the conclusion of the year, the US had purchased $475 billion in Mexican goods, compared to $421 billion from Canada and $427 billion from China, which saw its figure decrease by 20% from 2022.

This is not cyclical, this is new," said Andrew Hupert, a trade analyst who previously resided in China and now resides in Mexico

The nearshoring growth isn't limited to Mexico. According to an Inter-American Development Bank (IDB) research published in 2022, all of Latin America and the Caribbean are prepared to benefit, with exports of up to $78 billion expected in the next years. Argentina, Brazil, and Colombia poised to earn significant profits. However, they were all dwarfed by Mexico, which represented for roughly half of the IDB's projected nearshoring expansion. The Canadian auto parts lobby has expressed fear that Chinese investments in Mexico may undermine Canadian jobs. Mexico's current position is due to both its own initiatives and prosperity, as well as geopolitical circumstances outside its control. Experts think that it is only the beginning."It's a world of opportunities now," said Marco Villarreal, who assisted Hisun Motors, a Chinese producer of ATVs and UTVs, in setting up production facilities in Saltillo, a city on the outskirts of Monterrey.

Villarreal, who formerly worked at General Motors and Caterpillar, recounted a trip of industrial parks in the Monterrey-Saltillo region in late 2020, during which the president of Hisun's US business expressed surprise at the size of the manufacturing muscle in front of him."Marco, what's happening in Mexico is what happened in China 30 or 40 years ago when we started a manufacturing expansion," Villarreal remembered the owner telling him. "There is a growing interest from Asia to establish a presence in Mexico," said Alfredo Nolasco, a business development specialist who created the Mexican consultancy Spyral.Mexico has long served as a manufacturing base for the United States, thanks to tariff and duty-free programs that have allowed businesses to establish so-called "maquiladoras" - as the factories were termed in the 1990s - to assemble products solely for export. The North American Free Trade Agreement, as well as its modified counterpart, the United States Mexico Canada Agreement, benefited the southern partner.

However, a number of new factors have come together to cause the current spike

The one most frequently mentioned by experts on both sides of the Mexico-US border is the trade war between China and the United States. It started during the administration of former US President Donald Trump and has really taken off under President Joe Biden, according to Hupert. Hupert has been warning about decreasing gains in China for years, claiming that compliance expenses would outweigh benefits."To comply with Chinese regulations and US regulations at the same time is more or less impossible," says Hupert. "The United States in many industries is asking for information that the Chinese could at any time deem to be state secrets." Then came the COVID-19 pandemic, which revealed a logistical danger that had never been considered by a globalized market. Companies were forced to take difficult supply chain pills as the cost of shipping containers of goods to North America from China rose. It killed firms that couldn't get their products to market or made Mexico indispensable, as was the situation with medical supplies entering the United States during lockdowns.

All that being said, Hupert stated that corporations are not fleeing China or neighboring countries entirely, but rather opening branches or increasing their Mexican footprint. "The pandemic left us with a very important lesson that took us from globalisation to regionalisation of production," said Claudia Esteves, director general of the Mexican Association of Private Industrial Parks. "It's practically killing globalisation." The turmoil in Ukraine has also forced European interests to reexamine their manufacturing outposts in countries such as Poland, she said."Our good luck is due to our geographic position," she told me. "It's because we share a 2,000-mile [3,218km] border with the biggest market in the world."

In the agriculture industry, the expansion has been "astronomical"; when he started in the firm in 1987, the import of produce was a business that lasted from November to May

"Now, we're pretty much a year-round industry that imports from every single state in the country of Mexico," he informed me. "The berry sector is the largest growth sector and all for export to the United States." It is not just demand that has lubricated the economic wheel. There is forward thinking involved. In Nogales, for example, the Port Authority began planning to enlarge its port of entry to handle the increased influx of trucks when there were 900 to 1,000 crossing into the United States each day. It is now around twice that in each direction.Hupert detects two potential clouds in this upward trajectory: drug cartel instability and currency fluctuations. "The peso is just too damn strong," he told me. "That and inflation wipes out Mexico's cost advantage."

According to Villarreal, the benefit is not only in terms of cost, but also in terms of labor supply. The United States lacks the skilled labor that many US corporations require and which Mexico has spent decades creating. It currently has more than 50 years of experience in vehicle production, which means it has a workforce capable of technical assembly and is well-suited to less demanding positions such as furniture, he observed.As a result, the need for industrial parks has increased dramatically. According to Esteves, 50 new industrial parks were under development in Mexico in 2023, with nearly half being built by Chinese investors and the other 20% by Koreans. In 2019, there were 2 million square meters (21.5 million square feet) of occupied industrial park area. By mid-2023, that figure had risen to 4.3 million square meters (46 million square feet). "That's historic," she stated.Jamie Chamberlain, chairman of the Greater Nogales Santa Cruz County Port Authority, sees it as the continuation of a decades-long trend. He remembers visiting rural farms in Mexico as a boy with his parents, who began importing fruits and vegetables in 1971.