Chinese manufacturers in Mexico brace for potential US tariffs under Trump

However, the possibility of tariffs under US President-elect Donald Trump's administration has local businesses concerned about the future.

These industrial parks, such as those near Monterrey, Mexico, have benefited from Chinese companies relocating production closer to the US to avoid tariffs. The proximity to the US market, combined with cheap labour, has made Mexico an attractive location for Chinese manufacturers. These companies produce a wide range of goods, including electronics, furniture, and car parts, all of which are intended for export to the US.

But the potential for tariffs has caused uncertainty. Matt Harrison, president of Kuka Home North America, which has a furniture manufacturing base in Monterrey, expressed concern that tariffs could put his business at risk. "Simply put, 25 per cent tariff on Mexico puts me out of business," Harrison said. His company, like many others in the region, is waiting to see how the new administration will handle trade with Mexico.

Despite the potential for tariffs, Cesar Santos, a land developer in the area, believes that Chinese manufacturers will continue to invest in Mexico. Santos has seen an influx of Chinese investment since 2013, when he began developing his 1,500 acres of land to host factories. He views Mexico as a strategic location for manufacturing due to its proximity to the US. "From here, we are 160 miles from Texas. So, in 24 hours, 44 hours, the products are in the US from here. This logistics is very important, it is good for them," Santos said.

Santos' industrial park, Hofusan, houses factories from 40 Chinese companies. He remains optimistic about the future of these businesses despite potential tariffs. Many companies still view Mexico as a better alternative to manufacturing in China, even if tariffs are imposed. Santos highlighted that the US tariffs on Chinese goods that began in 2018 helped to drive Chinese companies to Mexico. "Actually, that helped us. When they put a tariff there (on) China, then those companies came to us," he said.

The influx of Chinese investment has significantly increased over the past decade. Direct investment from China to Mexico rose from USD 5.5 million in 2013 to USD 570 million in 2022. In the first half of 2024, USD 235 million came to Mexico from China, according to government statistics.

Despite the uncertainty surrounding tariffs, Santos is confident that Mexico will continue to be an attractive destination for Chinese companies. He has even donated land for local police infrastructure to ensure safety in the area.

While some Mexican developers, such as Ramiro Gonzalez, have embraced the growing partnership between Mexico and China, there are still challenges. Gonzalez, whose construction company has partnered with Chinese investors, pointed to cultural differences between Chinese companies and local workers, reported CNN.

"The Chinese culture is that they appreciate time. So, they expect to be fast in everything," Gonzalez explained, highlighting the need for faster construction and design processes to meet expectations.

Zhang Jianqiu, an engineer providing services for Chinese factories in Mexico, acknowledged the difficulties of adjusting to life in a foreign country. Despite feeling homesick, Zhang has adapted to his new surroundings by learning Spanish and embracing the local culture. Zhang sees the potential impact of tariffs as an unknown, noting that Chinese companies are "waiting and watching" the political situation.

"Most Chinese companies are still waiting and watching," he said. "And then they will make a final decision."

The threat of tariffs has already affected some companies. Harrison, for instance, has halted construction on a new building meant to accommodate increased orders from the US, fearing that tariffs will make his products too expensive. Instead, Harrison is exploring options in Vietnam, where labor is cheap and manufacturing costs are lower. "Absorbing 25 per cent is not going to happen for any company," Harrison said. "Who ends up paying for it at the end of the day? It's us, the American consumer and, to me, that's immediate inflation."

Despite the uncertainty, local Mexican workers remain committed to their jobs. The Kuka Home factory, which produces furniture for high-end retailers like Crate & Barrel and Williams Sonoma, employs over 1,100 people. "This has been a great opportunity. Right now, we have more than 1,100 employees," said Eric Espinoza, a supervisor at the factory. Espinoza warned that tariffs could result in higher prices for US customers, but noted that the loss of jobs in Mexico would be a far more serious consequence. "Without these jobs, many families would be affected," he said.

Economists warn that tariffs could lead to price increases for American consumers, as companies would likely pass on the costs. While tariffs may make US-made goods more competitive, other factors such as consumer demand and interest rates could complicate the economic situation.

Mexican businesses have benefited from the growth of Chinese investment in the country, but they are also aware that the trade relationship could shift depending on the political landscape. As President-elect Trump prepares to take office, Mexico faces the challenge of navigating a complicated relationship with both the US and China. "What we're seeing right now is that Mexico has a very complicated position because they need to assess where should I go next?" said Horacio Carreon, an assistant professor of international business at Tecnologico de Monterrey.

For now, many in Mexico's industrial Chinatowns remain optimistic, but they are also preparing for the possibility of new trade restrictions. If US tariffs become too burdensome, companies may look to other regions for expansion, CNN reported.

"If the US market becomes too challenging, we'll look to Latin America and beyond," Santos said, indicating that the future of these industrial parks could depend on how trade dynamics evolve. (ANI)