Mexico's Trade Surge: A Shift from China to U.S.

Mexico's surge in manufacturing and trade is reshaping U.S. import dynamics, surpassing China as the largest goods supplier.

### The Nearshoring Boom: Mexico Surpasses China in U.S. Imports
* 🚛 In El Paso, Texas, thousands of trucks transport goods back to Mexico, marking a significant shift as **Mexico overtakes China as the largest importer of goods to the U.S.** with **$475 billion in 2023**.
* 📈 The rise in imports from Mexico, which increased by **$20 billion from the previous year**, is driven by trade tensions with China, a growing manufacturing base in Mexico, and efforts to **bring U.S. imports closer to home**.
* 🏭 Chinese companies are utilizing Mexico as a "**back door**" to the U.S. market to circumvent tariffs, leading to a **surge in container trade** from China to Mexico, which was **up 22% from the previous year**.
* 💼 Logistics companies like Maersk and DHL are investing heavily in border operations, buying land for warehouses and enhancing **cross-docking facilities** to handle the **increased volume of goods**.
* 📊 The North American Free Trade Agreement and its successor, the USMCA, facilitate this trade, allowing **Chinese goods transformed in Mexico** to qualify as **Mexican products** and avoid tariffs.
* 🔍 U.S. Customs and Border Protection plays a crucial role in inspecting cargo, with **over 650,000 trucks crossing the Ysleta-Zaragoza Bridge in 2022**, highlighting the **importance of monitoring trade flows**.
* ⚠ However, challenges such as **political uncertainties, tariffs, and security issues** in Mexico could impact the nearshoring trend, as companies navigate a **complex landscape of trade regulations**.
* 🌟 Despite these hurdles, the outlook remains positive, with projections estimating Mexican manufacturing exports to the U.S. could reach **$609 billion by 2028**, fueled by **significant foreign investments**.

On this road in El Paso, Texas, stretching as far as the eye can see, thousands of trucks make their way back to Mexico after dropping billions of dollars' worth of goods bound for U.S. consumers. This is a scene that you see every day. Millions of dollars' worth of product are coming in from Mexico into the United States. For the first time in more than two decades, Mexico overtook China as the largest importer of goods to the U.S. Mexican goods imported to the U.S. totaled $475 billion in 2023, about $20 billion higher than the previous year. During that same period, Chinese goods imported to the U.S. came to $427 billion, $110 billion less than the year prior. And imports from Mexico are still climbing. In the first eight months of this year, U.S. imports from Mexico reached $334 billion, 5.8% higher

than the same period in 2023. Fueling that trend are simmering trade tensions between Beijing and Washington, an effort to bring U.S. imports closer to home, and a burgeoning Mexican manufacturing base. But there's another factor at play: to avoid American tariffs, Chinese companies are using Mexico as a back door to the U.S. With what you're moving within Mexico itself, the finished product. How much of those Chinese goods actually stay in Mexico and how much roughly do you think those Chinese products come here to the United States? I think there's a huge market for Chinese product in Mexico, but the big ticket item here is the U.S. market. That's why China's coming to Mexico. What we're trying to do is bring stuff from all over the world to Mexico, manufacture here, and send it again abroad. Chinese car companies, for example, are setting up shop in Mexico. Tariffs on Chinese goods date back to

2018, when the Trump administration launched a trade war with China. To take advantage of the Mexican trade, logistics companies like Maersk, DHL, and Uber Freight are ramping up their investments on both sides of the border. These companies are coming to Texas. It's a wild, wild west, where they are buying up land to secure warehouse space. At the center of it all is U.S. Customs and Border Protection, one of the world's largest law enforcement agencies with over 60,000 employees. We will do a complete inspection on it, from instruments of terror to narcotics to country of origin to manifest discrepancies, everything. More than 650,000 cargo trucks crossed Ysleta-Zaragoza Bridge in El Paso, Texas, in 2022. So how is China able to circumvent U.S. tariffs, and what are logistics companies doing to

prepare for the upcoming boom in Mexican trade? CNBC travel to Mexico City in El Paso to find out. In an effort to avoid U.S. tariffs, Chinese companies are moving their raw materials and operations to Mexico. Jordan Dewart is the president of cross-border logistics company, Redwood Mexico. In addition to this 100,000 square foot warehouse in El Paso, the company also has about 200 employees in Mexico. How has the landscape changed since the start of the Trump trade war when it comes to Chinese manufacturing? Well, it's no secret there was a lot of pressure on Chinese companies after those trade wars, and I think we saw immediately an opportunity for Chinese companies to move to Mexico to kind of catch this Nearshoring wave. Ocean container data tracked by freight analytics firms Xeneta backs that up. We have seen 18 months in a row now with ever increasing

basically all-time high monthly imports from China to Mexico. Container traffic from China to Mexico has surged in recent years. From January to August 2024, China to Mexico container trade was up by 22% from the year prior. That's on top of container trade along the same route in 2023, up 33% from 2022. At the same time, China's container trade to the U.S. has slowed down. You see an ever-growing trend into Mexico. I think that's pretty clear to me that something is going on here. Someone is preparing for something, and it's not all going into Mexico consumers. VesselBot, which also tracks container flows, shows the three-month period from April to June recorded the highest volumes of Mexico exports to the U.S. this year. The North American Free Trade Agreement, implemented in 1994, eliminated most tariffs between the three

countries. The United States, Mexico, Canada Agreement, or USMCA, which replaced NAFTA, went into effect four years ago. The agreement is up for renewal in 2026, and a focal point of those talks is expected to be trade with China. Chinese companies, if they import directly into the United States, they are faced with tariffs. If they bring their goods into Mexico, and those goods are improved upon, or some value added to them, they then qualify for the USMCA. In terms of what you have to do to have a product that's labeled Mexican, as opposed to Chinese in origin, you have to substantially transform it, which means it has to become a different product. So if I get a whole set of wooden boards, I turn that into a desk. I have substantially transformed that product. It has to change customs categories. Changing a product's economic nationality or

origin of goods means it can swap a Made in China label to a Made in Mexico one. An estimated $3.7 billion of Chinese foreign direct investments was made in Mexico in 2023, significantly higher than the previous decades. The Hofusan Industrial Park, 25 miles north of Monterrey, Mexico, is one example of that investment and is now home to at least 30 Chinese firms. In the past three years, nine Chinese car companies, including BYD and Chery, have set up operations in Mexico. What are you moving within Mexico? Is it more components to manufacturing plants? I think Chinese companies, when they establish themselves in Mexico, they were bringing finished goods in. Now they've moved on to raw materials, component parts. Back door has a connotation that they're doing something wrong. Just because you see a Mexican manufacturer using Chinese inputs does not mean that they're violating

any rules of origin. Simon Cohen is the founder and CEO of Henco, a logistics company that got its start in Monterrey, Mexico in 1998. The facility that we have behind us, it's one of the six facilities that we have in Mexico City. What we do here is we receive raw materials and finished goods from abroad. We tag them, we label them, we pack them, we repack them, and we deliver it to the distribution centers or final consumer. The company has about 1,000 employees, and in addition to its facilities in Mexico City, it has two others in Monterrey and another two coming online later this year. Roughly 20% to 30% of the goods here are shipped to the U.S., according to Cohen. The north part of Mexico is getting invaded with foreign investment, and people are coming from all over the world, from Asia, from Europe, from South America,

even from Africa. And they are trying to build plants and manufacturing facilities to enter the United States market. Not only are the Chinese setting up shop in Mexico with manufacturing plants, so are the European companies. They are moving their product away from China and they're setting up shop in Mexico. Some of the top ten companies importing into Mexico in 2024 include European companies like Pirelli Tires and SKF, a Swedish auto parts maker, as well as Tesla and General Motors. One key advantage, labor is often cheaper in Mexico than China, but its proximity to the U.S. might be its biggest advantage. The U.S. and Mexico share a 2,000-mile border with 47 active land ports of entry. Roughly 6 million U.S. jobs depend on trade with Mexico. The U.S. is also Mexico's largest export market. Mexican manufacturing represents about 40% of the

country's $1.3 trillion economy. The two countries also share a unique relationship when it comes to trade. During the cycle of production, materials and parts often cross the southwest border numerous times, while U.S. and Mexican factories work together to produce a good. As a result, 40% of the value of U.S. imports from Mexico are made of content produced in the U.S. Cars built in North America are believed to cross U.S. borders, including the border with Canada, eight times as they are being produced. That means, unlike imports from China, a large portion of the money U.S. consumers spend on Mexican imports goes back to U.S. companies and workers. Going back 30, 40 years, Mexico manufactured t-shirts and tequila. Now we're seeing much more sophisticated products from engines for airplanes, aerospace, automotive, electric vehicles.

Mexico produces 3.5 million vehicles annually. 76% of those are destined for the U.S. market. The top ten commodities traded between Mexico and the U.S. in June 2024 were vehicles, computers, and electrical machinery. But there are roadblocks ahead. Tesla announced in 2023 it was investing about $5 billion in a new factory in the northern Mexican city of Monterrey. However, that plan was put on hold after former President Donald Trump threatened to impose a 100% tariff on vehicles made in Mexico. Other headwinds facing companies investing in Mexico include security, worker availability, water scarcity, and Mexico's economic policies. What is the biggest threat to the Nearshoring boom? Politics. Tariffs. If tariffs are placed on Chinese goods, that will absolutely thwart the plan of these Chinese companies to backdoor their way into the U.S.

through the USMCA agreement, it will have a huge impact on those companies specifically. Juarez, one of Mexico's largest cities with about 1.6 million residents, is home to roughly 300 maquiladoras, or factories that take raw material and assemble them into finished products for foreign companies. To show you just how close we are to Mexico, right behind me is downtown El Paso. And a few miles away, two highways, over is Juarez, Mexico, and that's where the manufacturing facilities are located. For most trucks leaving Juarez, their first stop, Customs and Border Protection officers on the El Paso side of the border. Hi, how's it going? What do we have today? You don't have anything to declare in the cab of the truck? One box of water. Everything in order here? No one accompanying you or anything illegal? Ok, very good. Audan Ramos has been with the CBP for 27

years. We have officers doing up on our primary lane is checking all the trucks as they're walking by them to see if there's any anomalies, any changes made to that truck. Has an air tank been tampered? Modified? The rear doors of the trailer been opened without breaking the seal? On an average weekday, 2,430 trucks pass through this border. Most truck drivers make the trip 2 to 3 times a day. In addition to narcotics, human trafficking, and terrorism, officers of the Anti-Terrorism Contraband Enforcement Team and their colleagues are looking at the products being transported and their country of origin. We're looking where the product was made, where the final point of manufacture was, and that's what will determine country of origin. For these engines that we have behind us, not every single piece of the engine may have been manufactured in Mexico, but

that's where the final assembly and it was put together, that was in Mexico. Trucks are also checked by K-9 units, and drivers have their manifests vetted by officers. If an officer notices an irregularity, the truck could be sent for an X-ray exam or have its cargo offloaded for further inspection. The Ysleta crossing on the edge of El Paso, where this border is located, is the second largest after Laredo, Texas, for Mexico and U.S. trade. According to Ramos, it takes a trailer less than 30 minutes to clear U.S. customs. But as we found out, the return trip to Mexico can take much longer. In terms of the Mexican trade, we're looking at the volumes we were at the border, and the line of trucks heading back went on for miles. Why are we seeing such congestion over there?

And how does that impact, if you will, the U.S. supply chain? A lot of things are causing congestion here at the border. One is just the sheer volume of goods and the increase of trade that we're seeing come up from Mexico. But we're also seeing from time to time issues with Mexican customs clearance site and the ability to clear shipments going into Mexico. When that system goes down, it creates a massive backlog into the United States. It's a real problem. Once a truck clears El Paso customs, in most cases, it ends up at a cross-dock facility like this one. What exactly is cross-docking, and how is it done here? Well, goods that are manufactured in Mexico destined for the U.S. are typically loaded on a Mexican trailer. Those trailers can only come up to the U.S. side of the border about 30 miles in.

And then they're required to be cross-stocked onto a U.S. trailer so it can continue its destination into the United States. One benefit for logistics companies is the more touchpoints they have, and the more services they provide, the more money they can potentially make. This is a cross-docking facility. We've been to others. Do you have what we've seen at other places where Mexican drivers bring the product in, with their trailers, and then they go back? Yes. We're five minutes away from Ysleta International Bridge, and that was one of the key elements to find a location where Mexican drivers can come, drop their freight, and can go back to Mexico right away. But why don't U.S. logistics companies send their trucks and drivers to Mexico? We've seen that U.S. trucking companies have stopped sending their trucks into Mexico. They're just not getting the return and investment by

allowing that trailer to go all the way into Mexico. The companies that have picked up the slack are the Mexican trucking companies. The average annual salary for a Mexican driver is a little over $5,000. Mexican trucking companies face other challenges, too. Mexico has a shortage of 56,000 truck drivers, about 9% of its total driver workforce, and that number could double to reach 106,000 unfilled positions by 2028. The country is also facing record high diesel prices, soaring interest rates, as well as violence on its highways. On average, 50 cargo trucks are hijacked daily in Mexico. Even when trucking companies are able to get the trucks, they are struggling to have drivers get behind the wheels of these trucks and provide the capacity that we need. All of this goes into driving up transportation rates in Mexico. Despite those hurdles, logistics companies are

ramping up their operations at the border. The boom in nearshoring is leading to a plethora of investment from companies like Maersk, DHL, Uber Freight, even rail CPKC. In 2024, shipping giant Maersk opened a new 402,000 square foot cross-dock facility less than two miles from the Mexican border. We're at the new facility that Maersk has built, and while it may look empty, this is what they're envisioning for opportunity. In the world of logistics, you are building for tomorrow, you're not building for the here and now. The site has 73 dock doors and 116 spaces for trucks. When do you foresee this entire warehouse being filled? It's going to be a big challenge. I mean, it's a huge facility. There is a lot of competition in the market. Again, it's a matter of aligning Maersk asset,

aligning Maersk's competitiveness. Other logistics companies are expanding too. DHL's investment in Mexico started in 1985, in this warehouse, and since then, the volumes of trade that they have moved from Mexico have grown exponentially. In fact, over 5,800 packages are processed through this facility every day. Laredo is a hotspot for the cross-border peace. Just in June, we handled through Laredo or close to $30 billion in trade. We are crossing 18,000 trailers going north and south per day. We have seven different warehouses in Laredo, Texas, with over 1.5 million square foot to handle that kind of business. And even railroads are getting a slice of the action. CPKC is building a new railroad bridge from Laredo, Texas to Mexico, to handle the uptick in container traffic. The bridge will be constructed alongside an

existing one, and is expected to be operational in late 2024. The company has also launched a new train service for shippers linking Chicago and Kansas City to Monterrey, Mexico. The Nearshoring boom has the potential to boost Mexican manufacturing exports to the U.S. to $609 billion by 2028. Future growth, what are you guys anticipating? Well, I think the table is set. We've seen billions of dollars of foreign direct investment go into Mexico. That will translate into manufacturing facilities and finished goods destined for the United States. So we're very bullish on the outlook for Mexico, and we're investing heavily into this marketplace.

How China Uses Mexico To Avoid U.S. Tariffs

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CNBC

Mexico has surpassed China as the largest importer of goods to the U.

, with imports totaling $475 billion in 2023.

The increase is driven by trade tensions between the U.

and China, a growing Mexican manufacturing base, and Chinese companies using Mexico to avoid U.

Logistics companies are ramping up investments on both sides of the border, while U.

Customs and Border Protection plays a crucial role in inspecting the influx of cargo trucks.

Surge in China's Container Trade to Mexico

Container traffic from China to Mexico has increased significantly, with a 22% rise from January to August 2024 compared to the previous year.

This surge is part of a larger trend, with China's trade to Mexico up 33% in 2023 from 2022, while trade to the U.

Chinese companies are investing heavily in Mexico, with $3.

7 billion in foreign direct investments in 2023, and are now shifting from finished goods to raw materials and component parts.

Companies from China and Europe are increasingly setting up manufacturing plants in Mexico to enter the U.

market, attracted by cheaper labor and proximity to the U.

The unique trade relationship between the U.

and Mexico, with materials and parts crossing the border multiple times, benefits both countries' economies.

However, political factors, such as potential tariffs, pose a significant threat to the nearshoring boom.

The Impact of USMCA on Juarez's Maquiladoras

Juarez, Mexico, with its 300 maquiladoras, plays a crucial role in assembling products for foreign companies.

The El Paso border crossing is the primary point for trucks leaving Juarez, with Customs and Border Protection officers conducting thorough checks.

The Ysleta crossing is the second largest for U.

-Mexico trade, with trailers taking less than 30 minutes to clear U.

customs, while the return trip to Mexico often experiences significant congestion.

The increase in trade from Mexico is causing congestion at the U.

border, with issues in customs clearance creating backlogs.

Cross-docking is used to transfer goods from Mexican trailers to U.

trucking companies have stopped sending drivers into Mexico due to low returns on investment.

Mexican trucking companies are facing a driver shortage, high diesel prices, and violence on the highways, leading to increased transportation rates.

The Impact of Nearshoring on Border Operations

Nearshoring is driving significant investment from companies like Maersk, DHL, and Uber Freight at the U.

Maersk's new 402,000 square foot facility aims to capitalize on future logistics opportunities, while DHL's long-term presence in Mexico has led to exponential trade growth.

The boom in nearshoring is expected to boost Mexican manufacturing exports to the U.

to $609 billion by 2028, with increased foreign direct investment and new infrastructure projects, like CPKC's railroad bridge, supporting the growth.