Chinese companies are making their way into the American market. They bypass customs through Mexico

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Some Chinese companies are trying to simplify their way to the American market. For example, furniture retailer Man Wah Furniture is one of the companies that have moved their factories from their Chinese bases to Mexico. It now produces furniture in the city of Monterrey in the northeast of the country, where it has been operating since 2022, writes the website of the British BBC channel.

The company wants to improve itself by so-called nearshoring, i.e. by moving its factories closer to its target customers in the USA. At the same time, it will take advantage of the more favorable conditions of the country in which it is newly producing, which has primarily economic benefits for the company.

At the same time, both parties can benefit from it. For example, Man Wah Furniture by operating in Mexico will make it easier to enter the US market and Mexicans will get jobs. As Reuters reported, in the next five years, up to a million jobs could be added in the country thanks to nearshoring, and the GDP could increase by three percent.

Mexico already observed an increasing export trend last year, mainly thanks to increased US demand. Last May, the country saw an almost six percent year-on-year increase to around $53 billion.

Companies make their way to the US via Mexico in order to avoid higher transport costs and, above all, the US tariff imposed on Chinese goods. Although the products are manufactured by Chinese companies, according to international trade law, they are sold as Mexican products.

For foreign companies, the country has an attractive tariff exemption, which was secured by an agreement with the USA and Canada in 2020. The state is also close to the US and accessible by sea from both Europe and Asia. However, Asian companies are also interested in other Latin American countries. They are also moving to Brazil, Colombia and other countries, for example.

According to the company’s CEO Yu Ken Wei, Mexico is a strategic choice not only because of its proximity to the US, but also because of its good workforce. His company has already managed to employ around 450 people, and in the following years he wants to increase the number to 1200 people. “We have good operators and their productivity is high. So in terms of manpower, I think Mexico is also strategically very good,” the director told the BBC.

The company opened a sofa factory in the China-Mexico Hofusan Industrial Park. The territory is strategically located about 200 kilometers from the Texas city of Laredo, which lies close to the Mexican border.

“The intention here in Mexico is to raise production to the level of our operation in Vietnam,” the company’s chief executive Yu Ken Wei told the BBC. “We hope to triple or even quadruple production here,” he said.

The company, which is part of the group of furniture manufacturers Man Wah Holding, produces in addition to China, Mexico and Vietnam, also in Europe, for example in Poland or Lithuania and Estonia. For the year 2022, the holding earned over 2.7 billion dollars.

The Chinese transport and logistics company Cimic or the manufacturer of car parts Xinquan followed suit. They have established subsidiaries in Mexico with the aim of securing easier access to the American market, according to Siila Market Analytics. Cheaper costs and labor in Mexico are also an advantage for these companies.

As Reuters points out, however, the Mexican government fears that potential profits from nearsharing could be threatened by rising costs associated with, for example, high demand for industrial space. Other factors could be pressure to raise the minimum wage or the strengthening of the Mexican peso.

Chinese companies are taking a “detour” to the American market due to tensions between the two countries. The trade war between the countries began in 2018 when then US President Donald Trump imposed tariffs on Chinese goods, to which China responded in kind.

Mexico has already replaced China as the US’s largest trading partner. According to the Statista platform, which specializes in data collection, in 2023 Mexican exports to the United States reached over 475 billion US dollars. The value of imports from China was approximately 427 billion.

Some experts are therefore concerned about the possible development of the future of US-Mexico relations, which may be worsened by Mexico’s too close cooperation with China. “There are many things that divide the US Congress and few things that they agree on, and one of the things that they do agree on is that China poses a risk to American hegemony. That is why America is taking steps to slow down development and economic prosperity in China,” said American capital markets analyst at BH Securities Timur Barotov for Seznam Zpravy.

According to the analyst, the further development of trade relations between China and the US will be influenced by the outcome of the US presidential elections, which will be held this November. “For example, if Trump is elected, tariffs are expected to increase across the board, up to 60 percent. In the case of Biden, higher trade tariffs will probably also be introduced, but only in selected fields,” he explained.