For the first time in more than two decades, Mexico has officially replaced China as the largest source of U.S. imports. As soon as this news was announced, it immediately aroused the attention and heated discussions of all circles in the United States. This is undoubtedly a major victory for the United States, which once launched a trade war with China, and is seen as the latest development to jump out of the "comfort zone" of Chinese manufacturing. However, when the Americans looked through the ledger to find out the origins, they fell into unprecedented confusion and disappointment.
1. The origin of the trade war
The root cause of the Sino-US trade friction lies in the long-standing huge trade deficit. For many years, the United States has been China's largest trade deficit. China exports far more goods than it imports, resulting in a massive accumulation of dollar reserves, while the United States has to keep printing money for Chinese goods.
For a time, both sides seemed to be benefiting from this unequal trade. It's just that with the continuous growth of China's comprehensive national strength, the United States has begun to feel threatened and uneasy. In 2017, after Trump took office, the trade dispute between China and the United States entered a white-hot stage.
In an effort to undermine China's dominant position in supply chains, Trump has taken an extreme step — sharply raising tariffs on Chinese products. At first, it imposed punitive tariffs of 25% on some goods, and later threatened to raise tariffs on China all the way to the terrifying level of 60%.
2. Mexico's alternative strategy
The setting of tariff barriers has indeed hit China's exports to the United States hard, but it has also brought a heavy burden to the American manufacturing industry. Due to the needs of production and life, the United States had to turn to other supply channels.
At this time, Mexico, which is close to the border, took the initiative to act as a substitute supplier to the United States. Between 2018 and 2023, the total value of Mexico's exports to the U.S. grew at an average annual rate of 5% until it reached $475 billion in 2023, surpassing China's 20% decline over the same period.
The reason for this is that, in addition to the advantage of geographical distance, the United States is also secretly contributing to its operation. As early as the 90s of the last century, the United States concluded the North American Free Trade Agreement with Canada and Mexico, bringing these two countries into the scope of free trade. Later, the United States unilaterally opened the green channel to Mexico, giving extremely low or even duty-free tariff treatment to home appliances, automobiles and parts products, with the intention of cultivating it into a "second China".
3. Doubts about entrepot trade
However, just as the U.S.-Mexico trade ties are getting closer, a suspicion of "entrepot trade" has quietly surfaced.
According to the data, the types of commodities imported from Mexico to the United States, except for a small number of local products, basically overlap with the types of commodities exported from China to Mexico. At the same time, there has been a significant increase in the volume of freight logistics between China and Mexico. This strange phenomenon of "one rise and one fall" has aroused speculation and doubts about the practice of "entrepot trade".
The so-called "entrepot trade" refers to the fact that Chinese goods first arrive in Mexico, are repackaged and labeled, and then exported to the United States as "Made in Mexico". This would certainly circumvent U.S. tariff barriers, but it would also mean that Chinese-made goods would still dominate the U.S. market.
In recent years, a large number of packaging and labeling factories specializing in "entrepot trade" have emerged, and Chinese companies have also set up factories in Mexico to take advantage of the preferential tariffs of the North American Free Trade Area.
Fourth, the cost of different paths
For the United States, "entrepot trade" is undoubtedly a heavy slap in the face. To put it bluntly, it is the ineffectiveness of tariff sanctions and the complete failure of the trade war. The failure of those efforts to decouple from China is nothing less than an absurd "oolong dream".
Ironically, there are often additional transportation and labor costs incurred in the process of transshipment and subcontracting, which are ultimately passed on to U.S. consumers and manufacturers. It can be seen that the US has not only not diminished its dependence on Chinese goods, but has borne a heavy additional price due to wrong decisions.
Write at the end
The seemingly life-and-death trade war between China and the United States finally ended up with a helpless ending of losing the east and reaping the benefits. It is a fool's dream for the United States to shake the foundation of China's manufacturing industry by force alone. China, on the other hand, has always been in a relatively active position in this melee by virtue of its extraordinary production capacity advantages and business acumen. Perhaps this is the calmness and wisdom that a strong man walking on the track of world history should have.