After U.S. President Donald Trump imposed tariffs on steel and aluminum, tying them to national security concerns, tensions between the two countries escalated to the point that there are now tariffs on $250 billion worth of Chinese imports, including paper products.
China, probably the world’s largest exporting nation, started looking for alternatives to avoiding the tariffs and the protectionist policies of the Trump administration, reports the Mexico News Daily.
Bloomberg reports that one such company, Fuling Global Inc., a Chinese maker of plastic utensils that developed a lucrative business making paper cups and straws for U.S. restaurants had to figure out how to avoid the high tariffs on paper products.
So the company is opening a $4 million factory in Monterrey, Mexico, that will soon begin shipping millions of paper straws across the border to their customers in the U.S.
“We had to look for other ways to do business,’” said Fuling Chief Financial Officer Gilbert Lee. This way, they avoid the Trump tariffs and make up for higher-cost Mexican labor with lower shipping costs, so it all works out. “Mexico is a very logical and advantageous location for us.”
Fuling Global is not the only company that has moved its manufacturing from China to Mexico. Mexico has seen a big increase in its shipments of manufactured goods to the U.S., from poster board to air conditioner parts. U.S. imports of goods from Mexico surged 10 percent to almost $350 billion last year, the fastest growth in seven years.
This surge caused the U.S. trade deficit with Mexico to widen 15 percent moving up to $80 million, while the growth in shipments from China decreased by one-third, reports Bloomberg.
Mexico’s good fortune in trade shines some light on the difficulty in trying to win a trade war when companies can shift production or find new sources to avoid tariffs. What is even worse is that Trump may not realize the full extent of what he has created.
This is because, with a lot of manufacturers in the U.S., the cost of buying parts needed for the assembly process is too expensive because of the added tariffs. So, these companies are opting to look elsewhere, and Mexico is right across the border. Mount Pleasant, Texas-based Taskmaster has for years imported large wheels and tires from China, but the tariffs got so high the company started looking elsewhere.
The company’s list of alternatives now included Mexico, and they want to build a plant there. “A lot of people are moving production down there,” said Amanda Walker, the firm’s chief operating officer. The close proximity, access to ports and an educated workforce make “everything about Mexico attractive.”
Alan Russell, CEO of Tecma Group, a Texas firm that helps companies to open and run factories in Mexico, told Mexico Daily News that in his 35 years in the industry – he has not seen anything like the interest in Mexico from Chinese manufacturers.
“Any company manufacturing in China has had a wake-up call,” he said while describing that effect of Trump’s tariffs as “a case of unintended consequences.”
Will the surge in exports from Mexico stand the test of time? Bloomberg asks that question, and right now, it is a wait-and-see game. Trade wars can be complicated.
