Updates on the American trade war with China
The American trade war with China has intensified in recent weeks with no apparent end in sight. Economists and political scientists are generally not hopeful that the two countries will be able to work out their differences at the upcoming 2019 meetings and predict that things are likely to get worse before they get better – if they get better.
While this is bad news for American consumers and Chinese manufacturers, it’s good news for countries like Mexico. Many companies who have operated chiefly out of China, now affected by the stiff tariffs, are looking to Mexican locations and facilities to cut costs and keep their prices stable. Fuling Global Inc., for instance, a global company that makes plasticware for restaurants, recently opened a brand new facility in Monterrey. Gilbert Lee, Fuling’s CFO, reported a sentiment that many companies are feeling: “We had to look for other ways to do business.” And Mexico was a convenient solution.
From aluminum products to knitted fabrics, Mexico has seen significant increases in the last year. U.S. imports of Mexican vehicles have increased 17 percent, silk yarn – hardly even an industry in Mexico before the tariffs – generated $1.6 million last year. The Mexican economy is growing and good-paying jobs are more abundant than they’ve been in a long time.
“A lot of people are moving production [to Mexico]”, says Amanda Walker, COO for Taskmaster Components. Her company, which has imported tires and wheels from China for decades and then assembled them in Texas, is making plans to invest in a factory in Mexico.
For American companies, nearshoring makes more sense now than ever. The U.S./China trade war has highlighted advantages that have been growing, as Mexico becomes more competitive with China. More and more companies are seeing the logic of moving their operations from the other side of the world to the other side of the border. Mexico offers very similar labor costs as China, but also has much shorter shipping times, allowing companies to reduce their in-stock inventory, as the manufacturing facility is only a day or two away, instead of a week or two. Many American companies are looking south of the border as well; according to ATISA Industrial CEO Christian Carrillo, the average 100 employee company moving from the U.S. to Mexico will save an average of about $4 million USD a year; savings that can be reinvested in research and development, or can give a company a competitive edge as they can pass those savings on to the customer. Either choice is a recipe for growth and success.
Click to enhance image.