Mexico’s trade with the United States is strong and booming, with logistics companies eager to get a piece of the pie and politicians wary of how overseas companies can take advantage of recent North American trade laws to avoid U.S. tariffs.
Integrated logistics companies such as Maersk are building their capabilities to handle the historic trucking volumes of Mexican trade entering the United States, a trend driven by the United States, Mexico and Canada (USMCA) free trade agreement signed into law by former President Donald Trump. Trump will replace NAFTA.
Controversy has arisen over language in the USMCA that addresses how products obtain the “Made in Mexico” designation from U.S. Customs. Under the USMCA, if a product’s raw materials or parts are brought into Mexico and then assembled there, the final product will be “converted” into another product and may therefore be exempt from various tariffs.
Earlier this week, Zekelman Industries, North America’s largest independent steel pipe manufacturer, File a lawsuit Accuses the Republic of Mexico of violating trade agreements and dumping steel on the U.S. market. The violations will force Zekelman to close its pipe manufacturing plant in Long Beach, Calif., in 2022 and will force it to close another plant in Chicago next year, the company said. The closures will result in the loss of 400 U.S. employees.
A worker grinds structural parts at a steel manufacturing plant in San Luis Potisi, Mexico, Friday, August 2, 2024.
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Jordan explained: “Chinese companies will face tariffs if they import directly into the United States. If they bring goods into Mexico, and these goods are improved or add certain added value, then they are eligible to join the USMCA.” Duarte is a Mexican CEO of Redwood, a logistics company that handles cross-border trade. “This is how Chinese goods are able to avoid tariffs,” he said.
Chinese and European companies that once made products in China are now diversifying their supply chains by manufacturing in Mexico, as evidenced by the number of containers shipping Asian raw materials and parts to the U.S. southern neighbor from January to August. According to a trend, in 2024, the trade volume between China and Mexico will increase by 22% annually, while the trade volume in 2023 will increase by 33%.
Rising foreign direct investment in Mexico by Chinese and European companies has fueled a historic increase in cross-border freight traffic between the country and the United States, with “Made in Mexico” products serving key industries such as automotive, technology/electronics and textiles. Both parties are worried that Mexico will become a trade “back door” for Chinese exports to evade tariffs.
The Biden administration has revised global steel and aluminum tariffs first imposed by former President Trump, granting exceptions to Mexico and Canada in July. Tariffs on steel and Mexican products melted or dumped outside North America, or aluminum cast or smelted in China, are now included in the tariff policy to ease concerns about Chinese steel and aluminum entering the United States under the USMCA.
These trade changes are related to broad logistics trends, including the long-term need for nearshoring supply chains after years of escalating global risks, and are legal under U.S. law.
“The back door means they’re doing something wrong, but they’re not necessarily doing anything wrong,” said Mary Lovely, Anthony Solomon senior fellow at the Peterson Institute for International Economics. “Just because you see Mexican manufacturers using Chinese products , does not mean they have violated any rules of origin.”
Trump threats won’t slow down trade boom
Trump said he hopes to renegotiate the USMCA agreement reached with North American partners in 2020. trade negotiations may become part of the trade renegotiation.
During his campaign, Trump advocated imposing 20% tariffs on all goods from all countries and 60% to 100% tariffs on Chinese imports.
The threat of additional tariffs has not slowed down trade with Mexico. The latest data from Motive shows that cross-border trucking volumes increased by about 52% this year through September.
DHL, Uber Freight and others (and their subsidiaries) UberMaersk, Other companies are buying land and building warehouses and distribution centers in El Paso and Laredo, Texas, to seize the trade opportunity. The more touch points a company has in product logistics, the more money it can make.
“We’ve seen billions of dollars of foreign direct investment coming into Mexico,” Duarte said. “That will translate into manufacturing facilities and finished goods being shipped to the U.S. So we’re very bullish on the prospects in Mexico and we’re investing heavily in that market.”
Redwood Mexico has a factory in El Paso.
China and East Asia are playing a growing role in Mexican exports, according to a recent nearshoring report from Moody’s Analytics.
In the logistics sector, companies operate based on expectations for future growth and factors that contribute to a more optimistic outlook. In addition to the current growth in trade volumes, the company is also looking at how much foreign direct investment is being allocated to companies looking to establish manufacturing facilities in Mexico.
freight rail Canadian Pacific Kansas City Under construction new railway bridge Laredo, Texas, to Mexico to handle increased container traffic. The bridge will be built alongside the existing bridge and is expected to be operational in 2024.
“If you look at all the ground border crossings between the U.S. and Mexico, 44 percent of them are at the Laredo crossing between Nuevo Laredo and Laredo,” said Coby Bullard , you will find that 44% of them are at the Laredo crossing between Nuevo Laredo and Laredo.” CPKC Senior Vice President. “So for us, doubling the capacity of that gateway will improve the supply chain between the two countries.”
The railroad also launched new train service for shippers chicago Kansas City to Monterrey, Mexico.
Chinese foreign direct investment in Mexico is estimated at $3.7 billion in 2023, according to North American FDI and China investment expert Rhodium Group.
“The northern part of Mexico is being invaded by foreign investment, and people are coming from all over the world, from Asia, Europe, South America, even Africa,” said Simon Cohen, chief executive of logistics company Henco. “Some investment is coming to Mexico and they are trying to build factories and Manufacturing facilities to enter the U.S. market.”
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