Another kind of border conflict is being sparked by the 'Made in Mexico' trade controversy.

• The influx of Chinese trade into Mexico for manufacturing has triggered political anxiety and legal disputes over attempts to dodge Trump and Biden tariffs.
• A lawsuit was filed by Zekelman Industries, the largest independent steel pipe and tube manufacturer in North America, against Mexico for trade agreement violations and dumping of steel on the U.S. market.
• At the Texas border, historic cross-border trade between Mexico and the U.S. is drawing millions in logistics investment, while the northern part of Mexico is experiencing an influx of foreign investment, according to a logistics expert.

The booming trade between Mexico and the United States has attracted logistics companies and prompted politicians to scrutinize the potential misuse of recent North American trade law by foreign firms to evade U.S. tariffs.

Integrated logistics companies such as Maersk are expanding their capabilities to manage the unprecedented trucking volumes of Mexican trade entering the US, driven by the implementation of the USMCA Free Trade Agreement by former President Donald Trump as a substitute for NAFTA.

The USMCA includes language that specifies how a product can be designated as "Made in Mexico" by U.S. Customs. If raw materials or components are brought into Mexico and assembled there, the final product can be considered transformed into another product and may be exempt from certain tariffs.

Zekelman Industries, the largest independent steel pipe and tube manufacturer in North America, has filed a lawsuit against the Republic of Mexico for violating trade agreements and dumping steel on the U.S. market. The company claims that these violations led to the closure of its Long Beach, Calif., tube manufacturing factory in 2022 and will result in the shutdown of another facility in Chicago next year, resulting in the loss of 400 U.S. jobs.

According to Jordan Dewart, CEO of Redwood Mexico, Chinese companies can avoid tariffs by importing directly into the United States or bringing their goods into Mexico and adding value to them. This allows them to circumvent the tariff.

The trend of diversifying supply chains by manufacturing in Mexico is evident among both Chinese and European companies that previously manufactured products in China. The amount of containers transporting Asian raw materials and components into the southern neighbor nation of the U.S. has increased significantly, with China to Mexico trade up 22% year over year from January to August 2024, following a 33% increase in trade in 2023.

The surge in foreign direct investment from Chinese and European companies into Mexico is driving a significant increase in cross-border trucking between the country and the U.S., with "Made in Mexico" products being used in key sectors such as automobiles, technology/electronics, and textiles. There is growing bipartisan concern about Mexico being used as a trade "back door" for Chinese exports to bypass tariffs.

The Biden administration has revised the global steel and aluminum tariffs initially implemented by former President Trump, removing the exception for Mexico and Canada granted in July. Now, the tariffs policy includes duties on steel and aluminum products that are melted or poured outside of North America, or cast or smelt in China, to address concerns about Chinese steel and aluminum entering the US under the USMCA.

The trade changes are linked to long-term logistics trends, such as the need to nearshore supply chains due to rising global risks, and are legally permissible under U.S. law.

"Mary Lovely, Anthony Solomon senior fellow at the Peterson Institute for International Economics, stated that the backdoor connotation of the backdoor is not necessarily indicative of doing something wrong, and that using Chinese inputs by a Mexican manufacturer does not necessarily mean they are violating any rules of origin."

Trump threats not slowing trade boom

Trump has expressed his intention to renegotiate the USMCA deal he reached with North American partners in 2020. One of the key provisions was a requirement for the countries to review the trade deal after six years, which will commence in July 2026. Chinese manufacturing in Mexico is likely to be a part of the trade renegotiation.

Trump's campaign has centered on imposing a 20% tariff on all goods from all countries, and specifically targeting Chinese imports with tariffs ranging from 60-100%.

Despite the threats of additional tariffs, trade with Mexico is not being slowed down. According to the latest data from Motive, cross-border trucking traffic rose by approximately 52% year-to-date through September.

In El Paso and Laredo, Texas, companies such as DHL and Uber Freight, a subsidiary of Uber, are acquiring land and constructing warehouses and distribution centers in order to profit from the trade. By having more touch points in the logistics of a product, companies can increase their earnings.

"Dewart stated that billions of dollars of foreign direct investment have been poured into Mexico, which will result in manufacturing facilities and goods intended for the United States. As a result, we are optimistic about the future of Mexico and are heavily investing in this market."

Redwood Mexico has facilities in El Paso.

A report from Moody's Analytics indicates that China and East Asia are increasingly significant in Mexican exports.

Companies in the logistics industry base their operations on projections for future growth and factors that could positively impact their outlook. Apart from the current surge in trade volumes, they also consider the amount of foreign direct investment allocated by companies looking to establish manufacturing facilities in Mexico.

A new railroad bridge is being constructed by the freight railroad from Laredo, Texas, to Mexico to accommodate the increase in container traffic. The bridge will be built adjacent to an existing one and is expected to become operational in 2024.

"According to Coby Bullard, senior vice president at CPKC, 44% of all ground crossings between the U.S. and Mexico occur at Laredo, which is located between Nuevo Laredo and Laredo. Therefore, doubling the capacity of this gateway will enhance the supply chain between the two countries."

A new train service for shippers has been launched by the rail, connecting Chicago and Kansas City to Monterrey, Mexico.

An estimated $3.7 billion of foreign direct investments from China was made in Mexico in 2023, but the Mexican boom is not limited to China or Asian manufacturing.

"According to Simon Cohen, CEO of logistics company Henco, the north part of Mexico is experiencing an influx of foreign investment, with individuals from various regions such as Asia, Europe, South America, and Africa arriving. Some of these investments are aimed at constructing plants and manufacturing facilities to penetrate the United States market."