Last month, US President Joe Biden announced an $18 billion hike in tariffs on Chinese exports including EV batteries, semiconductors, and medical products. The tariffs follow a sharp increase in tensions between the two nations. Biden justified the sanctions by accusing China of unfair business practices. The Chinese government has similarly increased its scrutiny of the US, sanctioning Boeing and 2 other US defense contractors due to their sale of weapons to Taiwan.

The US is not the only country with increasingly worsening trade relations with China. On June 14th, G7 leaders issued a warning for China to stop circumventing Western sanctions on Russia, threatening further sanctions on China if their warnings were not heeded. Additionally, the European Commission proposed a 38% hike in tariffs on Chinese EV imports to the EU.

Trade tensions with the Chinese government are not new. In 2018, former US president Donald Trump hiked tariffs on Chinese imports significantly, prompting a tit-for-tat response from the Chinese government in what is widely regarded as the first US-China trade war. While the initial trade war cooled in 2020 due to both countries signing a phase one agreement, a failure to meet the goals outlined in the agreement has led to many of the initial tariffs still being in place.

US’s frictions with China have in Mexico re-emerging as the US’s main goods supplier. In 2023, US imports from Mexico increased by 4.5%, whereas imports from China decreased by 20.4%. Manufacturing has especially benefited from the USMCA, a free trade agreement between the US, Mexico, and Canada. Furthermore, nearshoring incentives implemented by President Biden have incentivized companies to set up shop in Mexico. For instance, domestic automotive manufacturers like Ford and Tesla have moved large parts of their supply chains to Mexico.

Interestingly, Chinese foreign direct investment (FDI) into Mexico has accelerated rapidly in recent years as well. FDI has increased from $38 million in 2011 to $328 million in 2021. Chinese manufacturers have especially rushed to set up factories in Mexico during 2024, avoiding the sanctions that would have been placed on their products had they exported directly from China to the US. While this fact may concern US lawmakers, Mexico stands to benefit from the plethora of jobs and investment that these Chinese investors bring.
Optimism about the future of Mexican manufacturing remains high. Commercial real estate prices have surged to record highs in 2024. As Claudia Sheinbaum ascends to the presidency in 2024, and the US-China trade war continues in full swing, the Mexican manufacturing sector is likely to continue its strong growth in upcoming years.