Chinese factories flock to Mexico in a bid to avoid Trump-era tariffs

Chinese factories have flocked to areas of Mexico that border the United States in a bid to avoid tariffs imposed under the Trump administration running into millions of dollars, Nikkei Asia reported.

Manufacturers that have set up shops across the border from the US to circumvent tariffs have led to record high Chinese direct investment in Mexico in 2021, according to the Japanese newspaper.

The report said companies based in mainland China and Hong Kong invested USD 606.3 million in Mexico during 2021, up 76 per cent from the year before and the highest figure since tracking began in 1999.

The recent surge in investment has made China the ninth-largest investor in Mexico, just behind South Korea, according to the Mexican Secretariat of Economy.

As many as 18 deals were announced in the Mexican city of Nuevo Leon in 2021, compared with seven in the previous year and just one or two a year between 2015 and 2018, the report says.

The Nikkei report states Mexico has drawn investment from 1,289 Chinese companies as of 2022. China has become Mexico's second-largest import partner after the US, the report added.

Owing to the large-scale investment, China's exports to Mexico reached USD 101 billion in 2021, up 50 per cent from five years ago and approaching half of what the neighbouring US exports to Mexico.

Moreover, Mexico's exports to the US totalled USD 398.9 billion, up 30 per cent from five years ago, though the extent to which Chinese firms contributed is unknown.

This growing trend comes two years after the US-China trade war which started when then-President Donald Trump's administration imposed additional tariffs of up to 25 per cent on a wide variety of Chinese goods beginning in July 2018.

Beijing retaliated by raising tariffs on American goods more than five times to an average of 19.3 per cent, according to the Peterson Institute for International Economics.