The US and Chinese economies are drifting farther apart than ever before.
For decades, China’s combination of cheap labour, skilled workers, government incentives, and good infrastructure made it the destination of choice for outsourced manufacturing. Children’s toys, auto parts, iPhones—anything and everything that could be made cheaper across the Pacific than closer to home.
Now, however, geopolitical tensions surrounding Taiwan, the trade war, and the residual shocks to global supply chains leftover from the COVID-19 pandemic are driving a wedge between the world’s two biggest economies. Last year, goods from China accounted for the smallest percentage of US imports in two decades.
Procurement is driving the shift away from China
US importers and procurement teams are a big driver of reduced demand for Chinese products. For example, Chinese-made goods accounted for 35.1 % of US clothing and accessories imports in 2022. That figure represents a 37.1% drop year on year.
According to an S&P Global Report, major US clothing importers like VF Corporation are “driving the shift out of China.” An AlixPartners survey from December 2023 found that almost three quarters of American companies were starting to reduce their exposure to Chinese imports. Over half said they were planning to reduce exposure in 2024 by over 10%. In total, the report found that US firms were aiming for a 40% reduction in their share of sourcing from China on average to reduce exposure.
In a climate where supply chain resilience is increasingly high on the agenda for CPOs, nearshoring is increasingly in vogue.
“What we are seeing from a couple of different perspectives is companies moving away from manufacturing in China,” Georg Roesch, VP of Direct Procurement at Jaggaer, told EPS News. While he notes that political, financial, and environmental factors all play a role in this trend, many US firms are looking to nearshore “simply from a resilience perspective because we are very dependent on China.”
China’s loss is Mexico’s gain
The US is expected to recapture a sizable portion of the manufacturing relocated away from the Chinese market. So too are other Asian nations with less complicated political relationships to the US. South Korea, Vietnam, and Indonesia are all getting a bite of the US imports market.
However, for organisations prioritising a balance between resilience and cost containment, Mexico is emerging as a golden opportunity.
“Mexico has become the greatest attraction in the world for investments,” Mexican Secretary of Economy Raquel Buenrostro said in March, addressing the country’s Business Coordinating Council. “[Nearshoring] is here to stay and that is not going away,” Buenrostro said. “We have to see how we integrate and how we take advantage of these opportunities at this moment.”
The Mexican government has invested heavily over the past decade into infrastructure to support manufacturing and logistics. Cities like Juarez near the Texan border are home to massive industrial park developments.
The city has a mature manufacturing industry backed by a skilled workforce experienced in assembly lines. Juarez has well-developed industrial infrastructure, including established maquiladoras (export-oriented factories) along with an established supplier ecosystem. Perhaps most importantly for US firms, Juarez offers a competitive cost structure, with lower labour costs than the US and China.
