For years, I've seen a familiar pattern play out—usually on LinkedIn, and usually from Chinese lawyers: whenever I write about the strategic shift of manufacturing from China to Mexico, someone inevitably replies, "But those products from Mexico are still essentially Chinese."
While it's true that many Mexican-assembled goods still contain Chinese components, this fails to account for the broader economic picture. The movement of manufacturing to Mexico—despite some lingering reliance on Chinese parts—represents a significant economic realignment that brings meaningful and growing benefits to both Mexico and the United States. Equally important, the share of Chinese content in Mexican-made products is steadily and unmistakably declining.
The Economic Ripple Effect: Beyond Simple Assembly
When a product is manufactured in Mexico, a significant portion of its value—often around 50% or even higher for certain industries—is attributed to U.S.-made components. This means that for every dollar spent on a Mexican-manufactured product, approximately fifty cents or more flows back into the U.S. economy through the supply of crucial parts, raw materials, and advanced machinery. In stark contrast, products manufactured entirely in China contribute minimally to U.S. domestic economic activity, with value primarily accruing offshore.
The deep integration of supply chains between Mexico and the United States means a significant portion of the value in goods exported from Mexico to the U.S. already originates in the United States. According to the Council of State Governments West (CSG West), citing OECD data, Mexico's trade surplus with the U.S. is "drastically reduced" if U.S. content is factored in, with about one-third of Mexico's gross exports to the U.S. comprised of U.S.-sourced parts and services. Supporting this, the U.S. Trade Representative (USTR) reported that over 40% of all Mexican goods imported in 2024 came from the United States. By contrast, U.S. content in Chinese exports is estimated to less than 5%.
This means that when you manufacture in Mexico for the U.S. market, you're not just tapping into lower labor costs, you're also building with American inputs and reinforcing the U.S.-Mexcio supply chain.
Not only that, but a strong Mexican economy, powered by nearshoring, boosts the purchasing power of Mexican consumers, who are far more likely than their Chinese counterparts to buy American goods and services, both at home and during visits to the United States. This consumer behavior further amplifies the positive economic impact for the United States of shifting manufacturing closer to home.
The Bottom Line: Manufacturing in Mexico isn't just a better long-term alternative to China—it's a far better outcome for the United States on virtually every level.
Why the Exodus? Beyond Tariffs
While U.S. tariffs on Chinese imports sparked the initial shift, the sustained exodus of manufacturing from China is fueled by several converging factors:
Rising Labor Costs
China's once-unmatched low-cost labor advantage has steadily eroded. Wages across its manufacturing hubs have climbed significantly over the past decade, narrowing the cost gap with nations like Mexico and Vietnam. As labor becomes pricier, the economic rationale for manufacturing in China weakens, especially when compounded by other strategic risks.
Geopolitical Risks and Trade Tensions
Ever-growing tensions between China and key trading partners—particularly the United States and the European Union—are injecting uncertainty into long-term supply chain planning. A volatile mix of tariffs, sanctions, export controls, and shifting trade policies has made China a far riskier base for global manufacturing. In response, many businesses are actively de-risking by relocating or diversifying their operations to countries that are aligned with the United States, rather than adversarial to it.
Intellectual Property (IP) Concerns
IP enforcement remains a persistent challenge in China. As geopolitical friction escalates, the legal and practical risks surrounding IP theft or forced technology transfers also intensify. Companies with proprietary designs, technologies, or brand equity increasingly favor jurisdictions with strong IP protections and judicial predictability.
Supply Chain Resilience
The COVID-19 pandemic brutally exposed the fragility of overextended and centralized global supply chains. Protracted lead times, container shortages, and widespread factory lockdowns in China crippled global production. Companies now prioritize shorter, more agile supply chains that allow for faster adaptation to market shifts, geopolitical events, and future disruptions.
Proximity to Market
Manufacturing closer to the United States—the world's largest consumer market—offers powerful, tangible advantages. Nearshoring to Mexico can reduce transit times and shipping costs, enabling more flexible inventory management, just-in-time production, and quicker responses to evolving consumer demand.
Cultural Compatibility
Cultural alignment and compatible business practices are often overlooked but crucial. For many U.S. and Canadian companies, Mexico offers a more familiar business culture and legal system. Shared regional trade agreements (like the USMCA), bilingual workforces, and greater overlap in business expectations simplify negotiation, communication, and partnership management. In contrast, cultural and regulatory misunderstandings often generate friction in U.S.-China commercial relationships.
The Danfoss Example: Strategic Adaptation in Mexico
In Caught Between Tariffs and China, Mexico Adapts to an Unpredictable U.S., today's New York Times discusses how American companies are thriving in Mexico, and how both American and Mexican manufacturers are actively de-Chinafying their supply chains within Mexico. The article also features a compelling case study on Danfoss, a large Danish multinational, which has shifted key operations from China to Mexico as part of this regional reorientation.
Interesting Sidenote: I find it both interesting and a little striking that Danfoss is the example used here. Back in the early days of this blog—around 2005—we published a post (long since taken down) spotlighting Danfoss as a model for how to succeed in China. That post was based on an article I had read detailing the specific steps Danfoss was taking to navigate China, and I highlighted six to eight things they were doing exactly right. At the time, I described them as one of the rare foreign companies that truly "got China," and I pointed to them as an example others would do well to follow.
Now, nearly two decades later, Danfoss once again seems to be ahead of the curve—this time in navigating the pivot away from China.
Per the New York Times, in response to the pressure of U.S. tariffs on Chinese imports and the broader desire for supply chain stability, Danfoss strategically adjusted its Mexican operations to comply with the stringent requirements of the United States-Mexico-Canada Agreement (USMCA). By proactively sourcing components from within North America and significantly increasing local production, Danfoss not only mitigated tariff impacts but it also cultivated stronger regional economic ties and enhanced its logistical efficiency.
"Until now, Mexico's trade strategy was still
closely tied to Asia. Bringing in supplies from there was
financially viable because of the low costs: Instead of thinking
how to manufacture things here, I'd import them. But the
current situation is pushing us to think, 'Hey, why
not?'"
—Xavier Casas, Danfoss Factory Director, Apodaca, Mexico
Before the tariffs took effect in March, only about 40 percent of Danfoss's exports traded under USMCA rules. However, when Trump agreed to suspend tariffs on Mexican goods that fell under the agreement, the company rapidly adapted. Today, virtually all Danfoss products shipped from Mexico to the United States comply with the trade deal. Most products that meet USMCA's specific rules of origin can enter the United States tariff-free.
USMCA: A Catalyst for a Regional Manufacturing Boom
The USMCA has promoted manufacturing growth and integration within North America. By stipulating that a significant percentage of a product's value must originate from within the member countries (U.S., Mexico, Canada) to qualify for tariff exemptions, the agreement provides powerful incentives for companies to rethink their global sourcing strategies. This not only reduces dependency on external, often distant, suppliers but it also fosters economic growth, job creation, and industrial sophistication within the North American region.
This strategy is yielding results. Per the New York Times article, about 87 percent of Mexican exports are now free of U.S. tariffs.
The USMCA's emphasis on labor standards, environmental protections, and digital trade rules helps ensure that manufacturing growth aligns with broader societal values, promoting a more sustainable and equitable economic development model across the continent.
Government Leadership: Plan Mexico
Mexico's leadership is helping to drive this transformation. Per the New York Times article, President Claudia Sheinbaum has launched "Plan Mexico," an ambitious strategy to revitalize manufacturing, substitute imports, and balance the trade deficit with countries like China that lack trade deals with Mexico.
"With the United States, we have the trade agreement, which is very important," Sheinbaum said recently, emphasizing that strengthening USMCA is "the only way" North America can "compete with Asian countries, particularly China."
The numbers are compelling: Per the New York Times, if North America could manufacture just 10 percent of the imports it currently receives from China, Mexico's GDP would grow by 1.2 percent, the United States by 0.8 percent, and Canada by 0.2 percent.
Even before Trump's election, the Mexican attorneys with whom we regularly work would often tell us how both the people and the government of Mexico know that it will eventually need to make a choice between the United States and China, and that choice will always be the United States. That is exactly what we are seeing happening.
The Data Tells the Story
U.S. Imports: China vs. Mexico, 2017–2025
Data from the U.S. Census Bureau clearly illustrates how the United States is decoupling from China and coupling with Mexico. For the first time since China joined the WTO, U.S. imports from Mexico exceeded those from China in 2023. Between 2017 and 2023, U.S. imports from China fell by 16%, while imports from Mexico soared by 52%.
The 2025 figures show U.S. imports from Mexico at approximately $219.5 billion outpacing China, while U.S. imports from China are at only $148.5 billion.
The Broader Implications: A Multi-Faceted Advantage
The accelerating shift of manufacturing from China to Mexico and the U.S. carries several far-reaching and critical advantages:
- Enhanced Economic Resilience: Diversifying manufacturing locations and shortening supply chains reduces the risk of global disruptions (like pandemics or geopolitical conflicts) and enhances economic stability for all involved nations.
- Robust Job Creation: Increased manufacturing activity within North America directly translates into new, often high-skilled, job opportunities in both Mexico and the U.S., bolstering both economies and driving wage growth.
- Increased Strategic Autonomy: Reducing concentrated reliance on any single foreign manufacturing hub, particularly China, enhances national security, strengthens critical domestic industries, and allows for greater sovereign control over essential goods and technologies.
- Improved Environmental Footprint: Shorter supply chains inherently result in lower transportation-related carbon emissions, supporting global sustainability goals.
Stronger IP Protection: Operating within a more familiar legal framework with robust intellectual property rights reduces the risk of theft and ensures greater returns on innovation.
This shift isn't just about economics—it's about values, alignment, and peace of mind. As one client who recently moved all of its manufacturing from China to Mexico told me:
I wake up feeling better every day knowing that my company is helping a neighbor—one that shares our values—instead of feeding a system that wants us to fail.
This sentiment underscores what many are realizing: that manufacturing decisions are no longer just about margins—they're about long-term alignment, stability, and trust.
A North American Manufacturing Renaissance
As more companies work to de-Chinafy their supply chains, the broader trend points toward a more deeply integrated U.S.–Mexico supply chain ecosystem.
Global supply chains are undergoing a profound realignment. As companies adapt to new geopolitical and economic realities, the focus on North American manufacturing is no longer just a trend—it's a structural shift reshaping the future of industry, trade, and economic resilience across the continent. Businesses that lean into this North American manufacturing renaissance will be best positioned for long-term success and stability.
To view the original article click here
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
