Comparing China, Mexico, and the US: Nearshoring Trends

Nearshoring, reshoring, and onshoring are terms which all mean something slightly different, but the general theme is the same: to bring manufacturing facilities, distributors, and jobs from overseas to the US and North America. These trends are contributing factors to our expectation for the upcoming industrial sector downturn in 2024 to be relatively mild.

Current Signs
Imports to the US from Mexico recently exceeded those from China, indicating a shift in our trade relationships. In the 12 months through July, imports from Mexico totaled $467.9 billion and were rising, while imports from China totaled $457.4 billion and were declining.  

The drivers behind this shift are multifaceted. First, the peso has made gains against the dollar, which will necessarily increase dollar-denominated imports. However, there are other economic reasons why Mexico could be a region of relative opportunity for US suppliers. China’s economy is losing steam as it contends with general waning demand and persistent property development woes – another major developer, Country Garden, is struggling to make bond payments. China’s central bank has cut interest rates in recent months, attempting to stimulate demand, but weak July readings in China Consumer Goods Retail Sales and China Industrial Production suggest the central bank has yet to make a significant impact. In the longer term, China faces demographic challenges.

In the US, multiple semiconductor manufacturers have broken ground or are nearing completion of fabrication plants in Arizona and Ohio following government subsidies for such facilities. These plants are perhaps the figurehead of the larger trend toward nearshoring and onshoring this decade. 

Near-Term Future
Mexico will not be impervious to the upcoming industrial sector recession. Our analysis suggests it will undergo a similar contractionary period as US Industrial Production, given waning global demand and lingering consequences from pandemic-era economic disruption. However, as with the US, close trading partners such as Mexico are likely to benefit from nearshoring and onshoring trends.

So What?
Given the current slack in the supply chain – the Global Supply Chain Pressure Index remains below the long-term average – now is a good time for businesses and suppliers alike to make changes to their supply and distribution networks. We expect the US will remain a competitive place to do business in the coming years, while nations such as China are more likely to struggle, given demographic and geopolitical headwinds.