By Aisha Ahmed (Research Lead) , Jade Nguyen, and Joshua Kallumkal
In recent years, the United States has seen a significant shift of imported goods from China to other countries. Due to the U.S-China economic relations, the US seeks to reduce imports on goods directly from China, leading to global companies making the strategic move to shift their manufacturing locations to other countries. Through this expansion, Mexico has been seen as the spotlight for manufacturing, while data from the Census Bureau shows which commodities from all over the world have been recently imported to the U.S, when originally exported from China.
US-China Economic Relations
The shift away from China. US importers have been actively reducing reliance on China, causing a decline in Chinese–made goods in the U.S. across various sectors. There has been a slight increase in total U.S. containerized imports; China has decreased 3.7% year-by-year from 2017 to 2022 [Figure 1], benefiting countries like Vietnam, South Korea, and India (S&P Global). Furthermore, as shown in Figure 2, through the first two months of 2024, metric tons of containerized imports from China, while slightly above 2019 levels, are below 2018 and 2022 levels, and are significantly below the long-term trendline.
[1] Source: S&P Global
[2] Source: Census Bureau’s USA Trade Online Database.
In recent years, there has been a trend emerging in global trade dynamics, led by a significant shift away from importing goods from China. One of the key reasons for this is the escalating trade tensions between the US and China. Due to the trade tensions escalating, there has been growing trade diversion; companies are seeking alternative manufacturing and sourcing locations to mitigate risks. Although there has been a shift, there has been an increase in trade flow for Vietnam and Mexico, as they are benefits of the trade diversion. Industries such as machinery, textiles, and electronics are particularly affected. (Nourma Connects).
Asian low-cost countries have become a great alternative to China, with 80% of manufactured imports from China capturing cost efficiencies if produced in these countries. Mexico has become an attractive option due to improved supplier bases, manufacturing labor forces, and the implementation of the USMCA. A PWC survey showed that 47% of CFOS across industries agreed that developing additional alternate sourcing options was a pressing issue during the pandemic, highlighting the value of supply chain diversity3. (MH&L)
Big companies like Apple have taken the lead in moving away from China. Apple initiated the manufacturing of the iPhone 15 in India, a strategic shift to diversify its global production. This shift aims to mitigate disruptions in supply chains due to factors like covid 19 and being able to save on import tariffs in India. Microsoft and Amazon have also followed the lead, while Vietnam is taking the business. Despite high import tariffs on electronics in India, apple views the country as a huge investment, shooting to increase investments in facilities to meet possible future demand (Forbes).
Goertek is a critical supplier that makes products such as AirPods, and it is moving a considerable part of its production from China to Vietnam due to pressure from Apple. Apple representatives would frequently visit Goertek asking about the timeline for relocation out of China. Goretek informed the Shenzhen Stock Exchange about a new Vietnam subsidiary through its Hong Kong branch; this new branch will produce AirPods. Goertek has a 280 million investment in a new subsidiary in Vietnam (9to5Mac).
Despite the shift in manufacturing activity from China to neighboring countries like Vietnam, the supply chain is still strong in China, as shown by Chinese manufacturing processing materials and intermediate products to southeast Asia for assembly—China's declining share of exports, from 22% in April 2021 to 18% in June 2023.
China's share of processing parts exports from South Korea and Hong Kong has fallen 2% over the last two years, showing the manufacturing shift from China (Figure 3).
[3] Source: Business Insider
Nearshoring with Mexico
Mexico's strategic position as a hub for nearshoring initiatives has considerably enhanced its economic and industrial landscape. This transformation is primarily attributed to Mexico's geographical closeness to the United States, which is a significant advantage for nearshoring. The proximity enables substantial logistical benefits, such as lower transportation expenses and diminished lead times for the delivery of goods, especially when contrasted with the longer durations required for imports from more distant nations. For instance, while products shipped from China to the United States might take weeks to arrive, those from Mexico usually reach their destination within two to four days.[JM1]
The escalation of tariffs on Chinese goods by the United States during the US-China trade war further propelled Mexico's stature as a crucial trade ally. Leveraging its geographical proximity and the existing trade agreements with the US, Mexico saw an opportunity to enhance its trade relationship, even surpassing China as the US's main trade partner in 2019 amidst the tariff impositions by the Trump administration. This shift was marked by a significant increase in the value of goods imported from Mexico to the United States, which rose nearly 5% between 2022 and 2023, reaching over $475 billion. In contrast, imports from China saw a 20% decline within the same period (MercoPress).
Due to the tariffs, an article written by Joe Antoshak from Freight Waves shared that Chinese suppliers have even shifted their production facilities to Mexico so that they could export their goods from Mexico to the U.S. to avoid the tariffs. The ruling Section 321 brings in imported goods under $800 to the U.S. without tariffs from countries other than China. With the facilities located near the U.S.-Mexican border, Chinese products can be imported in a way that is avoiding the high tariffs.
The intensification of nearshoring practices has significantly bolstered the economic bonds between Mexico and the United States, culminating in a more integrated North American region. As the second-largest trading partner of the United States, with trade volumes nearing $538 billion in 2020 (U.S. Department of State), Mexico benefits from a streamlined exchange of goods and services facilitated by agreements such as the USMCA. This economic synergy is reflected in the creation of thousands of jobs across various sectors in Mexico, notably automotive, electronics, aerospace, and medical devices. The automotive sector, in particular, has been a pivotal source of employment, underscored by substantial investments from companies like General Motors, Ford, and Volkswagen, and more recently, Tesla's announcement to establish manufacturing facilities in Mexico. This influx of investment and job creation has decreased Mexico's unemployment rate to 2.8% by the end of 2023 (Figure 4), showcasing the positive effects of nearshoring on the nation's labor market dynamics.
[4] Source: OECD
Moreover, nearshoring has played a critical role in diversifying Mexico's industrial base, thus diminishing its dependency on any single sector and enhancing its resilience against external economic shocks. While traditional sectors like automotive and electronics remain integral, there has been notable growth in emerging industries such as aerospace, renewable energy, and advanced manufacturing. This diversification is largely driven by increased investment in research and development, fostering technological innovation and skills training. By venturing into new industries, Mexico has not only maintained its competitiveness but has also established itself as a center for high-value-added manufacturing activities.
In the context of nearshoring and the evolving dynamics of trade between Mexico, China, and the United States from 2010 to 2020, several key trends and developments emerged. Notably, Mexico has demonstrated a significant upward trajectory in its export and import activities (Figure 5 and Figure 6), particularly in its trade relations with the United States, with approximately $300,000 billion in export. In 2022, Mexico's exports significantly increase the amount to $549 billion, positioning it as the 10th largest exporter globally[JM1] . The country's top exports include cars, computers, and crude petroleum, with the United States being the primary destination for these exports, amounting to $421 billion. This relationship underscores Mexico's pivotal role as a nearshoring hub, benefiting from its geographic proximity to the US. (OEC)
[5] Source: CECHIMEX (2020)
[6] Source: Trading Economics
Conversely, China's trade dynamics with the US have also been influential, despite experiencing shifts over the same period. According to WITS, in 2020, China's major export partners included the United States, highlighting the significant trade volume between the two nations. China's export strategy has been characterized by a broad range of products, underscoring its role as a global manufacturing powerhouse.
These patterns suggest a subtle landscape of trade relations, where Mexico's strategic nearshoring advantages have been increasingly leveraged, especially in the context of the US-China trade tensions. The increase in tariffs on Chinese goods by the United States (Figure 7), as mentioned earlier, further accentuates this dynamic, allowing Mexico to enhance its trade relationship with the US significantly. Mexico's rise as a nearshoring destination is further facilitated by its integrated economic ties with the US, catalyzed by trade agreements like the USMCA, fostering a more robust economic partnership.
[7] - Source: CECHIMEX (2020); Secretaria de Economía (2020a, 2020b) and United States Census Bureau (2020a, 2020b).
The transition in trade dynamics, from China's leading role as a primary exporter to the US to Mexico's emerging prominence, reflects strategic shifts in global manufacturing and supply chain management. This transition is further evidenced by Mexico's diversified industrial base and the creation of thousands of jobs within the country, strengthening its economic resilience and competitive edge on the global stage.
All things considered, nearshoring with Mexico has some challenges. In an executive summary from the Journal of Business Forecasting, one risk of nearshoring is security concerns between the U.S. Mexico-Border, as crime rate can be high in some locations. Along with border issues, Mexico’s is placed 126 out of 160 countries for the Corruption Perception Index. Another risk of nearshoring with Mexico is how every input material for supplying may not be available there. Even if there are many goods imported and exported to the country, the lack of certain commodities can cause potential shortages. Therefore, such risks may need to be overseen or supervised to have successful and safe nearshoring with Mexico.
Commodities Imported to the U.S. from Shifted Countries
As many companies shift their goods from being manufactured in other countries apart from China, data from the U.S. Census Bureau shows that in the recent years, U.S. Customs Import dollar by value for NAICS three-digit commodities have increased for such countries. Along with Mexico, India, and Vietnam, a report written by Huyo Britt from Una shares that Thailand and Poland have also began importing goods as alternatives to China.
As mentioned in the report, Vietnam is one of the alternate manufacturing hubs from China because they have a skilled labor force in producing goods. As of 2023, computer and electronic products were found to be U.S. commodity imports with the highest average dollar value (Figure 8) of $1,118,789,052, a dramatic change from 2017 of $309,422,17.30 (U.S. Census Bureau). This increase of import dollar value is due to technology companies shifting from China to Vietnam, including Intel, and as previously mentioned Apple. Thus, this data shows how the statement “Manufactured in Vietnam” for Apple’s AirPods (new generations) track back to the high popularity for electronic commodities manufactured in Vietnam and imported to the U.S, even if the input parts for Apple AirPods get transported from China to Vietnam.
[8] Source: U.S. Census Bureau
Along with Vietnam, The U.S. Census Bureau presents that the U.S. imports many computer and electronic products from Thailand at an average U.S. customs import dollar value of $332,946,978.70 in 2017 to $544,430,538.40 in 2023 (Figure 9), a 63% increase. Britt from Una shares an example that Western Digital has manufacturing facilities in Thailand for hard drive and other data storage products.
[9] - Source: U.S. Census Bureau
India is a crucial country for where companies are shifting imports away from China. As shared by Una, India is most likely to become a global manufacturing superpower rival with China. As mentioned before, Apple has also invested in making iPhones in India, while Boeing has also joined in for manufacturing operations related to airplane parts, utilizing the use of Indian research. U.S. Census Bureau data exhibits the highest growth for U.S. customs imports by dollar value for NAICS commodities for Chemicals. From 2017 to 2023, 325 – Chemicals increased its average Customs Imports by dollar value at 65% from $254,205,831.71 to $418,388,830.58 (Figure 10).
[10] Source: U.S. Census Bureau
In the report from the U.S. International Trade Administration, India’s chemical industry is valued at $220 billion. The U.S. imports petrochemical intermediates from India which account for 30% of total imports.
U.S. Census Bureau displays that U.S. Customs Imports by dollar value for NAICS commodities from Poland have achieved growth in many different sectors of commodities (Figure 11). Increases can be seen with:
336 - Transportation Equipment at 40% from an average of $43,622,676.78 in 2017 to an average of $61,185,656.50 in 2023.
333 – Machinery Except Electrical at 113% from an average of $23,947,843.65 in 2017 to an average of $51,247,858.66 in 2023.
334 – Computer and Electrical Products at 87% from an average of $24,526,659.92 in 2017 to $45,972,597.62 in 2023.
335 – Electrical Equipment, Appliances and Components at 190% from an average of $14,855,469.97 in 2017 to an average of $43,186,402.56 in 2023.
[11] - Source: U.S. Census Bureau
According to Una, Aerospace company Pratt & Whitney established manufacturing within the region and have been boosting growth for the U.S. aerospace industry. Poland is also a growing region for U.S. import commodities due to its geographical presence in Eastern Europe, where its closer to Western markets compared to Asia while also becoming an investment destination for companies parting ways with Russia.
As nearshoring with Mexico demonstrated phenomenal growth with U.S.-Mexican trade in 2023, U.S. Customs Imports by dollar value for most NAICS commodities vastly increased from 2017 to 2023 (via U.S. Census Bureau). The biggest sector of growth came from transportation equipment where the average customs import dollar value increased 43.7% from $2,752,779,855.54 to $3,957,856,786.78 (Figure 12).
[12] - Source: U.S. Census Bureau
As reported in the executive summary from the Journal of Business Forecasting, fortune automotive companies such as Ford, Tesla, and General Motors, all imports automotive parts from Mexico as they have manufacturing plants located within the country.
So far in January 2024, transportation equipment remains the highest NAICS Commodity for its average U.S. customs import dollar value of $325,193,594.95 (Figure 13). This data from the U.S. Census Bureau could imply that imports for automotive vehicle supplies from Mexico are bringing in potential growth and success for the automotive industry.
[13] - Source: U.S. Census Bureau
Conclusion
The U.S. and China have undergone transformations when shifting imported goods from China to other diversified supply chain locations around the world. Countries like Vietnam, India, Thailand, and Poland have grown a role in manufacturing goods that would be imported to the U.S. as their customs import dollar value has risen since 2017. Additionally, the growth of nearshoring with Mexico has gained prominence due to its logistical advantages and location near the U.S. Overall, shifting U.S. imports away from China will potentially redefine where and what goods can be found to be manufactured in the future.