In response to increased trade tensions between the United States and China, Mexico has emerged as an alternative manufacturing hub for foreign companies.
Data shows that Mexico has surpassed China as America’s top source of official imports for the first time in 20 years.
“The world couldn’t get access to enough Chinese goods in ’21, and it gorged on Chinese goods in ’22,” economist Brad Setser said. “Everything has been normalizing since then.”
The trade deficit with China has narrowed, leading to increased imports from other countries like Mexico, Europe, South Korea, India, Canada, and Vietnam.
“We are decoupling, and that’s weighing heavily on trade flows,” economist Mark Zandi said.
The decrease in trade with China is attributed to tariffs imposed by the United States, prompting companies to shift manufacturing to other countries.
“There was a period where geopolitics didn’t really matter for trade much, but as uncertainty increases in the world, we do see that trade becomes more sensitive to these positions,” research economist Stela Rubinova said.
Similarly, South Korea has seen increased trade with the United States, driven by its free trade deal and opportunities in the electric vehicle market.
Geopolitical risks and climate legislation have also influenced companies to diversify their manufacturing bases.
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