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U.S. trade war with China is a bonanza for Mexico

Proximity and declining shipping costs benefit America's neighbor to the south

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Mexico has been the winner in the Trump administration’s trade war with China.

Bloomberg media declared Mexico’s victory when citing a strategic move made by Fuling Global, a Chinese maker of disposable consumer products.

Fuling had developed a lucrative business making paper cups and plastic straws for U.S. restaurants. But new tariffs on $250 billion worth of Chinese imports forced the company to find an alternative.

It opened a $4 million factory in Monterrey, Mexico, which will soon begin shipping millions of paper straws across the border.

“We had to look for other ways to do business,’” said Fuling Chief Financial Officer Gilbert Lee, whose company will avoid the tariffs and make up for pricier Mexican labor with lower shipping costs. “Mexico is a very logical and advantageous location for us.”

It’s not an isolated example. Mexico has seen big gains in shipments to the U.S. in categories where competing Chinese goods were hit with tariffs.

In all, U.S. imports from Mexico surged 10 percent last year, the fastest growth in seven years. America’s trade deficit with Mexico has since grown by 15 percent while shipments from China slowed by about a third.

Mexico’s bonanza underscores the difficulty in trying to win a trade war where companies can shift production or find new sources to avoid tariffs. Given Trump’s early attacks on Mexico for taking U.S. jobs, it’s an ironic turn to observers such as factory consultant Alan Russell.

“It’s a case of unintended consequences,” said Russell, chief executive officer of Tecma Group, an El Paso, Texas firm that helps companies open and run factories in Mexico. Interest has never been this high in his 35 years in the industry, he says. “Any company manufacturing in China has had a wake-up call.”

Mexico’s gain is evident across sectors. Mexico’s metal ore exports to America more than doubled, while China’s sank by a quarter. Tariffs on aluminum products helped wipe out almost $500 million in imports from China as Mexico saw a 20 percent increase in U.S. sales.

Peeled garlic cloves from China sank by almost a quarter while Mexican exports rose 54 percent.

One of China’s iconic exports, silk, went to Mexico where shipments to the U.S. jumped from basically nothing to $1.6 million last year.

Mexico’s auto supply chain, which had already been expanding in Mexico, has continued to gain under Trump’s policies. U.S. imports of Mexican gas-powered passenger vehicles jumped 17 percent.

Even before Trump’s presidency, Mexico was becoming more competitive with China, in part due to rising Chinese labor rates and Mexico’s proximity to the U.S.

Source: Bloomberg

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