While China had shown a willingness to work with the United States on fentanyl under Biden, this strongman approach from Trump is a bad sign for any future hopes of collaboration. Beijing has already hit back with a 15% tax on certain types of coal and liquefied natural gas and a 10% tariff on crude oil, agricultural machinery, large-displacement cars, and pickup trucks, which took place on February 10th. It seems that a deal similar to the one the United States reached with Mexico and Canada is not in the cards.
Trade, Nearshoring, & FDI
Since 2018, China’s foreign direct investment in Mexico has grown at an average annual rate of 50%. Shipments to Mexico surged 60% last year, and China sells a fifth of all its new automobiles to Mexico. The two countries had a $93.8 billion trade deficit in 2018, with Mexico exporting $8 billion worth of goods to China and receiving $101.8 billion in goods.
While the economic relationship between Mexico and China is undeniably increasing, the United States has shown discomfort with the growing amount of imports. For now, Mexico seems to be prioritizing the appeasement of Trump. Sheinbaum recently rolled out an economic plan aimed at curbing imports from China and gave a speech defending the U.S.-Mexico-Canada (USMCA) trade pact which is up for review in 2026. She specifically said the trade pact is the only way to compete with China. Mexico’s agreement to work with the United States on fentanyl as a way to delay tariffs also suggests their determination to keep trade relations high.
The United States also has a vested interest in maintaining a positive economic relationship with Mexico. In 2023, Mexico surpassed China as America’s biggest trading partner (Mexico accounts for 15.8% of total trade, Canada 14.3%, and China in third place at 10.3%). Part of this shift in top trading partners is due to American efforts to prioritize nearshoring. American businesses are moving their operations to neighboring countries like Mexico and reducing their reliance on Chinese production. Apple, for example, announced its intention to slowly move manufacturing away from China in 2022, and production centers have been multiplying in Mexico ever since. Tesla is also building a new production plant in Northern Mexico. In total, 78% of Mexico’s exports go to the United States.
Economically, it makes sense for Mexico to bend to the United States in order to keep trade alive and set the stage for an improved USCMA trade pact in 2026. As China and the United States gear up for another trade war, Mexico could continue to welcome American business production, boosting its economy and creating jobs. However, Trump only agreed to pause the tariffs on Mexico and Canada for 30 days. If the 25% tariff does go into effect, it could be a huge blow to Mexico’s economy (and America’s and Canada’s).
If the relationship sours, Scott Morgenstern, professor of political science at the University of Pittsburgh, told the New York Times, “Mexico could turn to Washington’s biggest economic rival at a time when Beijing is seeking to assert more influence across Latin America.”
China seems to be preparing for that possibility. In 2023, Chinese FDI in Mexico reached a 13-year high, totaling$5.6 billion. The Rhodium Group found that this number could be six times higher than the official reports due to distortions in FDI data and investments through offshore entities in places like Hong Kong. American FDI is still higher ($33.8 billion in 2022) but has the potential to decline under Trump. During his first presidency, U.S. FDI to Mexico shrunk 19.6%. While some of this decline was due to the pandemic, the long-term trajectory still predicted a major decrease. Under Biden, global foreign investment to Mexico rose to 25%.
It is not hard to imagine a world where Mexico gets tired of the flip-flop of American politics and its impact on the Mexican economy. If Trump harms nearshoring efforts, holds true to his promise of tariffs, or refuses to negotiate a beneficial USCMA, Mexico could turn towards China for a brighter economic future.
Technology
Seventy-two percent of Chinese FDI in Mexico is in the form of automotive investments. The United States’ biggest national security concern with the growing China-Mexico relationship has to do with digital components of manufacturing. Both Trump and Biden have expressed concern on this issue. Trump has suggested tariffs of 200 to 500% on vehicles from Mexico and Biden proposed a ban on Chinese hardware and software in connected cars on U.S. roads.
In fact, ten firms identified by the U.S. Department of Defense as linked to China’s military apparatus are active in Mexico. Huawei is one company making its way into Mexican infrastructure. Felipe Ángeles International Airport openedin Mexico City in 2023 and utilizes a smart modular data center created by Huawei. Huawei has increased its activity across the entire Latin and Caribbean region, making up a third of all 5G tests conducted in the region.
The United States has expressed numerous security concerns with Huawei and other Chinese technology companies. According to a 2022 Department of Defense report, the PRC has used the information space to steal industrial and defense secrets, spread misinformation to undermine democratic institutions, and suppress dissent both domestically and internationally. The latest drama over a TikTok ban is the most recent example of U.S. national security concerns over Chinese tech, although Trump seems open to negotiation on that front (China, not so much).
Unless Mexico makes an effort to decrease China’s digital influence, the technology issue could further create tension between the United States and Mexico. If the United States believes Chinese digital influence over its southern neighbor causes too much of a security threat, the steps it takes could be drastic. America could continue to place high tariffs or even bans on Mexican goods it believes were built with Chinese technology or enforce greater measures to protect against cyber espionage. Whether a deal can be struck over TikTok might tell us more about how the U.S.-China technology race will unfold.
Ultimately, Whose Gulf is It?
Perhaps the most symbolic representation of U.S.-Mexico relations is Trump’s renaming of the Gulf of Mexico. In case you somehow have not heard, a new executive order declares it shall now be the Gulf of America. It seems that Trump is going to do whatever he believes is in America’s best interest no matter how petty, and Mexico will have to pick its battles, adapting to America’s vision of the Americas or forging a different path.
Right now, as Mexico works with the United States during the 30-day pause on tariffs and takes measures to limit Chinese economic dependence, it seems they have chosen the first option. Geographically, the United States will always have the upper hand in winning Mexico’s loyalty; it’s better to appease a next-door neighbor, even if it means worsening a relationship an ocean away. However, Trump could push Mexico to look across the Pacific as tensions grow over trade, immigration, drug trafficking, and technology. China seems to be laying the groundwork for a stronger relationship with Mexico and Latin America, willing to play the long game as the steady tortoise in comparison to the unpredictable hare.
#Race #Win #Mexicos #Favor
