Nothing is more important to China than retaining its position as the leading manufacturer in the world. Most companies in the U.S. and Europe rely on China for the goods they sell and the parts they need. Due to China’s expertise in manufacturing, economists assumed that China would remain the center of the manufacturing universe. Not any more.
COVID severely disrupted global supply chains. COVID also called attention to a painful fact – China is 7,233 miles from the U.S. When a company is in need of products, China’s distance becomes a constraint on meeting customer demand. COVID got many executives thinking about an alternative to China for their manufacturing needs. However, since Chinese companies are the best at manufacturing, American companies quickly realized that leaving China is easier said than done.
China’s saber rattling with Taiwan and the U.S. reignited discussions about the need for companies to find an alternative to China. Executives were forced to entertain the possibility of China attacking Taiwan resulting in a possible military response from the U.S. The result would be catastrophic for U.S. companies dependent upon China for manufacturing as China would effectively be ‘Closed for Business’ until hostilities ceased, and the U.S. and China came to an agreement about Taiwan.
Always playing the long game, China began examining the potential moves that could be made by U.S. companies and the U.S. government in the event hostilities break out between Taiwan and China, or if companies choose to relocate their manufacturing. China’s research indicated that the only logical destination for companies wanting to find an alternative to China is Mexico. Executives at U.S. companies came to the same conclusion.
Chinese companies have no intention of forsaking the American economy, still the largest on earth. Instead, they are setting up operations inside the North American trading bloc as a way to supply Americans with goods, from electronics to clothing to furniture.
China is investing billions in Mexico for many reasons but primary among the reasons are these key points:
1. China prevents U.S. companies from signing agreements with Mexican manufacturers. China is not only building factories using equipment from China, China is going to provide most if not all of the skilled labor. Like Africa, Mexico is about to see an influx of Chinese.
2. Nearshoring manufacturing to Mexico ensures that China has a second global location for generating massive amounts of revenue for China. There is also plenty of labor.
3. Mexico provides China with protection. China understands that if they attack Taiwan, the U.S. may enact punishing tariffs or even sanctions. China also understands the U.S. won’t do anything to disrupt manufacturing and shipping in Mexico, because it will severely disrupt the U.S. economy.
China has big plans for Mexico.