U.S. and China Got Into a Trade War and Mexico Won

The Trump Administration’s trade war with China has turned out to be a windfall for another country the president frequently berates: Mexico.

Consider Fuling Global Inc., a Chinese maker of plastic utensils that developed a lucrative business making paper cups and straws for U.S. restaurants. But President Trump upended all that with tariffs on $250 billion worth of Chinese imports, including paper products. So the company found an alternative, opening a $4 million factory in Monterrey, Mexico, that will soon begin shipping millions of paper straws across the border.

“We had to look for other ways to do business,'” said Fuling Chief Financial Officer Gilbert Lee. The move means the Wenling, China-based company will avoid the tariffs and make up for pricier Mexican labor with lower shipping costs. “Mexico is a very logical and advantageous location for us.”

Fuling isn’t alone. Mexico has seen big gains in shipments to the U.S. in categories where competing Chinese goods were hit with tariffs, everything from poster board to air conditioner parts. In all, U.S. imports of goods from Mexico surged 10 percent to almost $350 billion last year, the fastest growth in seven years. That helped widen America’s trade deficit with Mexico by 15 percent to more than $80 billion. Meanwhile, the growth in shipments from China slowed by about a third.

Mexico’s bonanza underscores the difficulty in trying to win a trade war where companies can shift production or find new sources to avoid tariffs. Despite Trump’s vow to reduce it, the U.S. trade deficit for goods globally hit a record $891 billion last year as tax cuts boosted demand for imports and retaliatory tariffs weighed on American exports. Given Trump’s early attacks on Mexico for taking U.S. jobs, it’s an ironic turn to observers such as factory consultant Alan Russell.

“It’s a case of unintended consequences,” said Russell, chief executive officer of Tecma Group, an El Paso, Texas firm that helps companies open and run factories in Mexico. Interest has never been this high in his 35 years in the industry, he says. “Any company manufacturing in China has had a wake-up call.”

Much of the shift in companies sourcing from Mexico instead of China centers on low value-added items where substitution is easier, according to Jorge Guajardo, a former Mexican ambassador to China. For example, Taskmaster Components has for almost 20 years imported large wheels and tires from China, and assembled them for companies making trailers and recreational vehicles. But tariffs on many of those products pushed the Mount Pleasant, Texas-based company to go hunting for new sourcing. That list now includes Mexico, where it wants to invest in a factory. The U.S. isn’t being considered because Taskmaster hasn’t found a willing partner among the few remaining American manufacturers.

To continue reading: https://www.bloomberg.com/news/articles/2019-03-27/who-is-winning-trump-s-trade-war-with-china-so-far-it-s-mexico?utm_campaign=news&utm_medium=bd&utm_source=applenews