WASHINGTON – In the depths of the pandemic, as global supply chains buckled and the cost of shipping a container to China soared nearly twentyfold, Mr Marco Villarreal spied an opportunity.
In 2021, Mr Villarreal resigned as Caterpillar’s director-general in Mexico and began nurturing ties with companies looking to shift manufacturing from China to Mexico. He found a client in Hisun, a Chinese producer of all-terrain vehicles, which hired him to establish a $152 million (S$204.6 million) manufacturing site in Saltillo, an industrial hub in northern Mexico.
Mr Villarreal said foreign companies, particularly those seeking to sell within North America, saw Mexico as a viable alternative to China for several reasons, including the simmering trade tensions between the United States and China.
“The stars are aligning for Mexico,” he said.
New data released on Feb 7 showed that Mexico outpaced China for the first time in 20 years to become the United States’ top source of official imports – a significant shift that highlights how increased tensions between Washington and Beijing are altering trade flows.
The US’ trade deficit with China narrowed significantly last year, with imports from the country dropping 20 per cent to US$427.2 billion, the data shows. American consumers and businesses turned to Mexico, Europe, South Korea, India, Canada and Vietnam for auto parts, shoes, toys and raw materials.
Mexican exports to the US were roughly the same as in 2022, at US$475.6 billion.
The US’ total trade deficit in goods and services, which consists of exports minus imports, narrowed 18.7 per cent. Overall US exports to the world increased slightly in 2023 from the previous year, despite a strong dollar and a soft global economy.
US imports fell annually as Americans bought less crude oil and chemicals and fewer consumer goods, including cellphones, clothes, camping gear, toys and furniture.
The recent weakness in imports, and drop-off in trade with China, has partly been a reflection of the pandemic. American consumers stuck at home during the pandemic snapped up Chinese-made laptops, toys, Covid-19 tests, athleisure, furniture and home exercise equipment.
Even as concerns about the coronavirus faded in 2022, the United States continued to import a lot of Chinese products, as bottlenecks at congested US ports finally cleared and businesses restocked their warehouses.
“The world couldn’t get access to enough Chinese goods in ’21, and it gorged on Chinese goods in ’22,” said Dr Brad Setser, an economist and senior fellow at the Council on Foreign Relations. “Everything has been normalizing since then.”
But beyond the unusual swings in annual patterns in the last few years, trade data is beginning to provide compelling evidence that years of heightened tensions have significantly chipped away at the US’ trading relationship with China.
In 2023, US quarterly imports from China were at roughly the same level as they were 10 years ago, despite a decade of growth in the US economy and rising US imports from elsewhere in the world.
“We are decoupling, and that’s weighing heavily on trade flows,” Moody’s Analytics chief economist Mark Zandi said of the US and China.