Mexico’s robust trade with the United States has led to a surge in logistics activity, with companies like Maersk building out their capacity to handle historic trucking volumes. The trend is driven by the use of the USMCA (United States-Mexico-Canada) Free Trade Agreement, signed into law by former President Donald Trump as a replacement for NAFTA.
Concerns over “Made in Mexico” Designation
The USMCA has sparked controversy regarding how products gain the “Made in Mexico” designation from U.S. Customs. Under the agreement, if raw materials or components of a product are brought into Mexico and then assembled there, the final product may be exempt from various tariffs.
Chinese Companies Exploiting Loopholes
Chinese companies have been using this loophole to circumvent tariffs by importing goods directly into Mexico and then adding value to them. This allows Chinese goods to enter the US market without facing tariffs. “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 at some value added to them, they then qualify for the USMCA,” explained Jordan Dewart, CEO of Redwood Mexico.
Foreign Direct Investment Fuels Cross-Border Trucking
The increasing foreign direct investment from Chinese and European companies into Mexico is fueling a historic increase in cross-border trucking between the two nations. “We’ve seen billions of dollars of foreign direct investment go into Mexico,” said Dewart. “That will translate into manufacturing facilities and finished goods destined for the United States.”
US Administration Takes Action
The Biden administration has amended global steel and aluminum tariffs to address concerns that Chinese steel and aluminum are coming into the US under the USMCA. The changes include duties on steel and Mexican products that were melted or poured outside of North America, as well as aluminum cast or smelt in China.
Trade Renegotiation Expected
Trump has said he wants to renegotiate the USMCA deal, with Chinese manufacturing in Mexico likely to be a key part of the trade renegotiation. Threats of additional tariffs have not slowed down trade with Mexico, with year-to-date cross-border trucking traffic rising by approximately 52%.
Logistics Companies Invest Heavily
Companies like DHL, Uber Freight, and Maersk are buying up land and building warehouses and distribution centers in El Paso and Laredo, Texas, to capture the trade. “We’re very bullish on the outlook for Mexico and we’re investing heavily into this marketplace,” said Dewart.
Nearshoring Trends
The trend of nearshoring is expected to continue, with companies site operations based on expectations for future growth and factors that contribute to a more bullish outlook. According to a recent nearshoring report from Moody’s Analytics, China and East Asia are playing a growing role in Mexican exports.
Source: CNBC
