While Mexico might not be the backdoor to the US, as Chris Jones, EVP of Industry at Descartes Systems Group notes, that doesn’t mean Chinese components and sub-assemblies aren’t being used in the manufacture of goods destined for the US.
Mexico imports into the U.S. have grown significantly since 2020, after a dip in 2019, according to supply chain and logistics technology company Descartes. This trajectory continues, growing 6.1% for the first 5 months of 2024 versus the same period in 2023.
“That is very healthy growth, and it has really ramped up over the last few years,” says Chris Jones, EVP of Industry at Descartes Systems Group.
“While people may think that these numbers show the U.S. is moving away from our dependence on China, however, it’s not happening that way. Just because an import is coming from Mexico doesn’t mean the product is not originally from China,” Jones adds.
Made In China
Chinese import volumes into Mexico signal that at least part of the growth referenced above is due to China importing an increasing volume of goods to the U.S. through Mexico. Jones cites the fact that Mexico’s real GDP grew 1.1% in the first quarter of 2024, while China’s imports into Mexico grew 16.7% YoY for the first five months of 2024.
“The data shows that more goods are moving from China into Mexico than the country can absorb,” Jones explains. “If we consider some absorption of the Chinese goods, the disparity is still great enough to suggest that Chinese goods are taking an increasing share of what flows from Mexico to the U.S.”
Jones’ analysis of U.S. imports from Mexico for 2016 to 2022 uncovered a similar trend. U.S. imports from Mexico grew 54%, while Mexico imports from China grew 138% during the same period – a significant percentage unlikely to have been completely absorbed by the Mexican economy which only grew 3.4% over that period, Jones observes.
“Instead, these Chinese imports are most likely finished products – or sub-assemblies used to manufacture products in Mexico – that are destined for the US,” Jones continues. “It’s apparent that China now represents a significant percentage of the value of US imports from Mexico.”
China Direct
Looking at the growth of Chinese imports into Mexico and considering increased US tariffs on China and Mexico’s benefits from USMCA, it may be easy to assume that China is using Mexico as a “back door” to the US to avoid tariffs. However, surprisingly, the data does not support the idea. Even though China apparently represents a substantial part of Mexico’s imports to the U.S., the converse is not true – Mexico does not represent a significant portion of imports to the U.S. originating in China.
“Chinese products are not all coming straight out of Mexico. The majority still come directly from China,” Jones asserts. Descartes data suggests that Chinese goods are entering the U.S. through Mexico, but that amount is still small compared to the direct imports from China. This indicates that, at least currently, China is not rerouting most exports to the U.S. through Mexico to avoid tariffs.
Still the major supplier to the U.S., China represented 38.8% of total U.S. container imports in June 2024, showing impressive 13.8% growth over June 2023 – even higher than the exceptional overall U.S. container import volume YoY growth of 10.4% for the same month – according to Descartes’ July global shipping report. China has lost some share of U.S. imports to fast growing exporters like Vietnam, but volumes of Chinese exports to the U.S. have still increased. Despite the expanding percentage of U.S. import share gained by Vietnam and other countries like India and Thailand, China has remained the dominant country of origin in eight of the top 10 goods categories analyzed by Descartes from 2016 to 2022. In addition, Jones points out that Vietnam is similar to Mexico in that Chinese products are also assembled there and then imported by the U.S.
“At this point there’s not a lot of evidence to say that China moving exports through Mexico has made much of a difference in China’s exports to the U.S.,” Jones explains. “Goods made in China are still shipping directly, the primary way Chinese goods reach the US.”
With new tariff increases on Chinese imports of steel and aluminum, semiconductors, electric vehicles, batteries, solar cells, port cranes and medical products announced by the U.S. in May, however, this could change in the near future. The potential imposition of quotas by the U.S. could also be a factor that induces China to channel exports through Mexico. With these factors in mind, Mexico remains an attractive opportunity for China to sidestep tariffs, as well as mitigate the supply chain risks associated with shipping everything directly from China.
“China is creating new types of business partnerships in geographies like Mexico because it will give them better access to the world’s largest economy and will also allow them to get around these substantial new tariffs,” adds Jackson Wood, Director of Industry Strategy, Global Trade Intelligence for Descartes. “I can envision Chinese companies building even more products in Mexico because it will be cheaper to ship into the U.S. and they won’t have to pay the tariffs. I wouldn’t be surprised if there is a further evolution of this – companies based in Mexico with a majority Chinese ownership or some type of financial partnership with Chinese conglomerates.”
Northern Exposure
While Mexico seems to be enjoying a boost from the USMCA, according to Descartes data, Canada is not. Canadian imports into the U.S. show a decline of 2.3% for the first 5 months of 2024, compared to the same period in 2023.
“Imports into the U.S. are growing, and our economy is relatively strong,” Jones concludes, adding that he would expect Canadian imports to be trending in the same direction. “But Canada is not benefiting from this, and USMCA is not helping drive increased Canadian imports into the U.S., at least for the first half of this year.”
