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Is Mexico replacing China in US supply chains?

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  • Ouyang, Hanzhen
  • Shi, Shuo

Abstract

In 2023, Mexico exceeded China and became the largest trade partner of the US. Will Mexico further replace China and rise to a strategically vital supplier for US supply chains? This working paper shows that although US supply chain sources are shifting from China to Mexico, China remains the primary value-added source of Mexican exports to the US market. Moreover, Mexican exports to the US rely on low-skill sectors, whereas more Chinese exports are high-skill goods. The current US trade shift is likely caused by China’s FDI inflows to Mexico’s traditionally competitive export sector. However, Mexico lacks edge-cutting manufacturing firms to substitute China in US supply chains. Therefore, the US strategy of “trade diversion” cannot support Mexico’s role in reducing the US supply chain dependence on China. The US should rethink a sustainable trade framework that promotes stable cooperation with China.

Suggested Citation

  • Ouyang, Hanzhen & Shi, Shuo, 2024. "Is Mexico replacing China in US supply chains?," LSE Research Online Documents on Economics 123941, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:123941
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    File URL: http://eprints.lse.ac.uk/123941/
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    References listed on IDEAS

    as
    1. Aaditya Mattoo & Alen Mulabdic & Michele Ruta, 2022. "Trade creation and trade diversion in deep agreements," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(3), pages 1598-1637, August.
    2. Dai, Mian & Yotov, Yoto V. & Zylkin, Thomas, 2014. "On the trade-diversion effects of free trade agreements," Economics Letters, Elsevier, vol. 122(2), pages 321-325.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    supply chains; Mexico-China competition; USMCA; trade diversion;
    All these keywords.

    JEL classification:

    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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