Things Have Changed
Things Have Changed
From East to West: How Mexico Is Forging the Next Chapter in Global Manufacturing
In the past few decades, it's been like watching the world shrink right in front of us. Globalization has turned our planet into this super connected place where everything's buzzing. Borders? They've become kinda blurry. Businesses? Oh man, they're popping up all over the globe. And tech? Well, it's like the ultimate game-changer, making even the most remote spots possible market hotspots.
But winds of change are blowing once again. Enter: Slowbalization. While it might sound like we're hitting the brakes, it's a bit more complicated than that. Countries are revisiting the whole global trade angle thanks to the volatile past few years we’ve witnessed - from rising trade tensions, evolving geopolitics, and supply chain crises driven by COVID. We're moving from that whole worldwide party mode to a chill regional hangout scene.
In this series on Things Have Changed Podcast, we're going to unravel the layers behind this shift. Specifically, Mexico is emerging as a standout beneficiary, as US companies aim to divest from China and invest closer to home!
Amidst the intricacies of Slowbalization, Mexico emerges as a standout beneficiary. As the whirlwind of global trade cools and countries seek more regional, strategic partnerships, Mexico's geographical proximity to the US and robust trade agreements place it at a pivotal position.
As companies reevaluate supply chains and lean towards nearshoring, Mexico's blend of competitive labor costs, established manufacturing prowess, and its strengthened ties with the U.S. through agreements like the USMCA, makes it a beacon for businesses looking for agility and resilience in this new economic landscape. In essence, Slowbalization is opening doors for Mexico that globalization merely hinted at.
Helpful Links:
- https://www.morganstanley.com/ideas/mexico-nearshoring-gdp-growth
- https://www.wsj.com/articles/mexicos-industrial-hubs-grow-as-part-of-trade-shift-toward-nearshoring-11675257070
- https://www.wsj.com/articles/how-u-s-and-china-are-breaking-up-in-charts-282bd878?mod=Searchresults_pos5&page=1
- https://www.bloomberg.com/news/newsletters/2023-06-28/supply-chain-latest-us-nearshoring-proof-grows-as-mexico-exports-jump?in_source=embedded-checkout-banner#xj4y7vzkg
Disclaimer: The information and opinions expressed in this episode are for informational purposes only and are not intended as financial, investment, or professional advice. Always consult with a qualified professional before making any decisions based on the content provided. Neither the podcast nor its creators are responsible for any actions taken as a result of listening to this episode.
In the past few decades it's been like watching the world shrink right in front of us.
Yahoo Finance:Once considered key to increasing trade, fostering peace and raising the standard of living, globalization is now seeing a pushback.
Jed Tabernero:Globalization has turned our planet into the super connected place where everything's buzzing Borders. They've become kind of blurry Businesses. Oh man, they're popping up all over the globe In tech. Well, it's like the ultimate game changer, making even the most remote spots possible market hotspots. But the winds of change are blowing once again.
Yahoo Finance:And the issue was raised at Davos, with new data showing world exports and imports are now in retreat for the first time since the Second World War. Partly driving this retreat nationalistic policies and protectionism.
Jed Tabernero:Enter globalization. While it might sound like we're hitting the brakes, it's a bit more complicated than that. Countries are revisiting the whole global trade angle thanks to the volatile past few years we've witnessed from rising trade tensions, evolving geopolitics and supply chain crises driven by COVID.
Introduction:Yeah, the showdown with Russia. You also have supply chain issues, post pandemic tensions with China. Everyone's wondering what globalization will look like in the 21st century.
Jed Tabernero:We're moving from that whole worldwide party mode to a chill regional hangout scene.
Shikher Bhandary:In this series on Things of Change podcast, we're going to unravel the layers behind the shift. Specifically, Mexico is emerging as a standout beneficiary, as US companies aim to divest from China and invest closer to home.
Introduction:If you'd known how important the technology economy was 20 years ago, would you have done things differently? The internet, cell phones, the cloud and data Things have changed. We're here to talk about it.
Shikher Bhandary:Hi, I'm Jed. Hi, I'm Shikor. Welcome to Things of Change, your new economics and technology podcast. So, jed, you know I'm always chasing performance. I'm always chasing outperformance, even though I'm probably better off just putting my money in NASDAQ or the SNI. I am one of those people who are like you know what. I think I could be better. I think I'm better than all the hedge funds, all these typical rigged markets. I think I can outperform the SMP. So I'm always chasing. Okay, what's the next trend? Is there a vibe shift? Is there a new social media platform?
Jed Tabernero:Vibeshift okay.
Shikher Bhandary:I'm just trying to see what's happening out there. So I come from like a manufacturing world and so I still have. Some of my closest friends from school are still in the manufacturing world, right, and there was a consistent theme of them saying hey, you know what, I'm traveling to Mexico this weekend and I'm like you've been in Mexico like three times this month. What's happening? Right, Usually they're flying to China to set up the assembly lines, to set up manufacturing and stuff. I was interested, I'm like what is happening? And he was like, dude, we're moving production manufacturing line out to Mexico because it's cheaper and it's closer. And that was the whole play and I started thinking it makes so much sense. The labor's there, the workforce can be trained, it's near right. So it kind of solves a big, big problem with global supply chains, which was the big issue over the past few years.
Shikher Bhandary:I was just looking at, okay, what's out there that's outperformed, the SMP, right? No-transcript. The Mexico index has kind of done that. It's really been a better performer than some of the big heavyweight indexes that we see in the US. That's super popular, Agreed. The US indexes, being that massive, still crush it. But it's interesting seeing that a Mexican index is up there with the best.
Jed Tabernero:Huge shift. Huge shift, man, and that's interesting. You mentioned that If you are listeners of Things have Changed podcast, there's also one of the companies that was on the show that is increasingly really thinking about Mexico too, which is ASSAK. You might remember one of our first actually our first Things have Changed episode with a guest was with Dylan Terrell, co-founder of ASSAK. So this microfinancing company started in Africa, so it has that experience of dealing with markets that are still developing and it's interesting, dylan has been going back and forth to Mexico the last few months as well. So there are some exciting developments there to be seen only from the manufacturing side. We talked about microfinancing, that's, on the financing side of things that are getting more and more interested in Mexico as a place to do business. So really interesting stuff that's happening in Mexico. But our listeners might ask why Mexico all of a sudden? Why are we seeing all this growth and interest in foreign direct investments from companies all across the globe looking at Mexico as a partner?
Jed Tabernero:And I think the story there really comes from the interesting relationship that US and China has had in the past few years. I mean, dude, we've been watching this whole thing change from the start right. Ever since, I think, trump was elected in 2016, trade tensions between US and China kind of started getting a little more hot. You know, and you saw it on the news a lot, we saw figures that people weren't paying attention to in the past. Dude, when we were looking into this, like, still up to today, our relationship with China is so strong, like it has with other trade partners, but our relationship, particularly in the United States, is pretty strong with China. I looked at how much of our smartphones in the US were imported from China. Okay, staggering number as well. Dude, 80% of our freaking smartphones are imported from China. That's a ridiculous number.
Shikher Bhandary:That's in everyone's hands. Don't forget every single item in your home, from toys, games like batteries now Everything comes from China. But let's not forget China changed the landscape of business across the world 30 years ago. What China did with setting up the manufacturing out there your Nikes, your clothing, your iPhones everything manufacturing went to China, and that freed up so much capital. Us businesses got extremely profitable. You couldn't be a CEO and not say the word China in your earnings call. It was that important, like how we see earnings calls today, where it's just like AI, ai, ai. A year ago it was metaverse, metaverse, metaverse. Before that it was crypto. We've always had these big trends, but the trend of China was there for like 30, 35, 40 years since the 1980s. So huge, huge unlock that Asia provided to the West Exactly.
Jed Tabernero:And I think when we look at how our partnership has evolved over the years, it's definitely on a downtrend towards partnership. As I mentioned, opening was the increasing trade tensions between US and China that has been more reflecting with how much we're importing from the country. In almost a lot of categories even electronics dude the share that we import from China is now decreasing. Some interesting numbers there, looking at US machinery imports decreasing from 25% to 21% in the same period of 2023. It's not like a huge number to think about, but if you think about how much volume that is, that's billions of dollars, billions of dollars of trade happening between US and China. So where really is the US going to start looking for its products? As you mentioned, over the last 30 years we've been looking at China to say, look, I want to unlock my margins, let's go to China, let's make this thing cheaper. Where are they going now for this stuff?
Jed Tabernero:And I think that's where this series is really going to shed some light on the fact that because this relationship from the two largest trade partners there out in the world, these increasing tensions, are pushing us toward a direction where we may have to make a little more complex supply chains than we have today. Maybe we have to get our smartphones from somewhere else. Maybe we have to get our tissue paper from somewhere else, like things are changing once again and countries like the US are starting to look elsewhere to try to build those things. Where's the next manufacturing hub going to be? Where's the next place I can get raw materials to get processed Like now that we're looking at this whole electric revolution that also became a topic of discussion, or supply chains talk? Like we have a risk there where a lot of the raw materials that come in for processing are manufactured in China and China is kind of leading that race. More than 50% of EVs sold in the world are sold in China. That's insane, dude, that's insane.
Shikher Bhandary:The raw materials, all of that, and I think what really shed light as to how dependent the whole world is with the whole China trade is with COVID. Right, we found out, everything that we use in the West, in the US, in Europe, comes from China. So your medical equipment, your PPE stuff, your gowns, your testing kits, you know all of that is manufactured out there, and so the plan was okay. We are too reliant on this one source. How do we start increasing some diversification? Would it be Vietnam? Would it be Brazil? Would it be Mexico? Would it be Canada? Would it be India?
Shikher Bhandary:So countries started exploring other options. Yeah, and Mexico has been really gaining from this. I mean, they share such a huge border with the US and they are riding this wave of nearshoring and that's one of these terms that's been making the headlines where the US is moving manufacturing and production closer to their domestic base, and that's the nearshoring right. And the US gets cost-effective labor. They have a free trade agreement. Remember China, there are tariffs on the trade, so, as a result, mexico automatically becomes a cheaper alternative.
Jed Tabernero:Very interesting, dude. Very interesting because NAFTA, which we've talked about a lot in our previous episodes as well, is supposed to increase the fluidity of trade between the North American countries, including Mexico and Canada. But a large player in that game, canada has always been a super large trading partner for the US and Mexico. Actually, surprisingly, dude, doing this research, I've learned that Mexico has been manufacturing cars since way back. They have the capability to, they have the intellectual capital to be able to do that. So it's an interesting but obvious first choice, I think, for the US to participate in nearshoring a lot of these activities. It's interesting because the percentage US goods imported from other countries that percentage for China has been going down since trade tensions has been rising, okay, meaning we've been importing less, basically, from China ever since that phenomenon has been happening and slowly, nobody's been paying attention to the freaking Mexico and how much we're importing from Mexico. Dude, they are now odds as far as June 2023 of this year with how much we import from China. Wow, that's actually insane.
Shikher Bhandary:Like comparable Mexico and China this year.
Jed Tabernero:Yeah, that's an insane stat to think about, because Mexico is now a major trading partner for the US, like that's a lot to say, and I think the industries developing in Mexico today are sort of not exactly mimicking how China does. You know their very low cost labor, I think now it's like such an evolution from hey. Now we don't have to put this on a plane necessarily, we could put this on a train, you know. So manufacturing all of a sudden becomes a little more up. Near short is attractive for that reason. There's certain things, dude, you can't put on a plane right, because it's too heavy. You got to put it on a freaking ship. The shipping will take long amounts of time. There's very high risk right now in ports.
Shikher Bhandary:Think about the emissions. I mean there are second order effects, but it's just makes sense because a lot of these you mentioned, mexico has been building cars for a long time. It's interesting these car companies have made huge announcements in Mexico, huge investments, just this year, just this year, and what they are planning to do is the product is built in the US, but it's finished in Mexico, you know. So you can offload certain steps of the manufacturing process to Mexico, steps that does not require that level of sophistication. You can actually move out there because they've been doing this for, you know, 20 odd years. So the auto industry has been booming. Bmw $860 million to expand one of the plants out there. Tesla Gigafactory in Mexico as well $5 billion. So huge investments, and it hit like historic highs in 2023.
Jed Tabernero:Yeah, it's crazy to think that as well, because if you're thinking about exports to the US right, that accounts for 40% of Mexico's $1.3 trillion economy. Isn't that insane? That's an insane amount. And you just mentioned all these manufacturing partners, you know, coming in and expanding in Mexico. Although manufacturing pretty much follows a trend, especially in Mexico, of how the economy is going, there are other industries that are heating up. You know we mentioned financing coming in from one of our first guests here at. Things have Changed Well. Ternium, a company that has steel mills for a business right, processing steel, has also invested $2.2 billion in construction of a new steel mill in Mexico. So it's not just hardcore manufacturing, everything else from the supply chain. There's a potential for them to start building in Mexico, which is an interesting shift.
Shikher Bhandary:The theme of our podcast ultimately comes down to one thing change right. And we're seeing these since COVID. It feels like every few months you have this radical shift taking place right, and this is one of those shifts where you're starting to see alternatives to the Asia trade which turns out to be all these emerging markets around the world. You know Mexico is one, india is one, vietnam is another, cambodia, Brazil, and so this whole series is us exploring these markets and how they are leveling up. Next up, actually, we will be focusing on Brazil specifically. Brazil is not just killing it on the football field, and I mean soccer in this case. They have some really interesting tech companies coming out there, from Stoneco and Paxiguro and Mercado Libre. So they are weaving their own story here and we cannot wait for you to listen to our exploration of how the Samba nation is dancing its way through changing the whole economic landscape. So until then, keep thinking, keep questioning and, as always, stay curious.
Jed Tabernero:The information and opinions expressed in this episode are for informational purposes only and are not intended as financial investment or professional advice. Always consult with a qualified professional before making any decisions based on the content provided. Neither the podcast nor its creators are responsible for any actions taken as a result of listening to this episode.
