WASHINGTON — President-elect Donald Trump says one of his first priorities when he takes office next week will be to impose steep tariffs on Chinese imports, a move he claims will protect U.S. jobs and boost domestic manufacturing.

But if recent trends are any indication, one of the biggest beneficiaries could be workers in Mexico.

After Trump imposed tariffs on billions of dollars worth of Chinese goods during his first term, more companies are moving manufacturing operations from China to Mexico. Industry analysts and executives working with Mexican manufacturers say they are seeing another wave of interest from companies looking to move production from China to Mexico as Trump pledges to escalate the trade war.

"It's definitely deja vu, and it's just the beginning," said Raine Mahdi, whose company Zipfox connects businesses with manufacturers in Mexico. "Last time, this problem almost disappeared with the Biden administration after the Trump administration. Now, it all started before Trump officially took office. It's not going to just go away. Companies won't be able to Wait for it to be over."

Under the USMCA trade agreement between the United States, Canada and Mexico - similar to the previous North American Free Trade Agreement - tariffs are generally not imposed on goods made in Mexico and shipped to the United States, although Trump has threatened to impose new tariffs on Mexico if Mexico is not doing more to stem the flow of migrants and drugs across its border.

The relocation of manufacturing to Mexico could undermine Trump's promise to voters that higher tariffs on China would incentivize companies to bring production back to the United States and provide a more level playing field for American businesses. During Trump's first round of tariffs on China, the number of companies moving production out of China for the U.S. market increased. But instead of moving production to the United States, many companies are heading to other low-cost countries.

"It will create jobs in a few industries that are protected and cannot be moved overseas, but for most companies it will just move them out of the country," said Mary Lovely, a senior fellow at the Peterson Institute. China moves to Vietnam or Mexico” for the international economy. "I do think it's a false promise."

Since his election, Trump has threatened to impose tariffs on Mexican goods on his first day in office. But doing so would violate the United States-Mexico-Canada Agreement (USMCA) trade agreement - which Trump has touted as a major negotiating victory during his first term. Lawyers and trade policy analysts say breaches of the deal could trigger legal challenges and retaliatory tariffs that would impact U.S. companies. It could also cause turmoil in financial markets and raise prices for consumers on everything from cars to groceries, they said.

Under the terms of the agreement, the United States will begin renegotiating the USMCA agreement in July 2026. If the three countries do not agree to extend the agreement, it will terminate in 2036.

Alejandro Delgado, Mexico country manager for real estate data analytics firm SiiLA, said companies remain interested in Mexico despite looming uncertainty about tariffs. In addition to low trade barriers, proximity to the United States means cheaper shipping costs and the ability to avoid potential bottlenecks in the United States port. Labor costs in Mexico are also relatively low, with the minimum wage in areas near the U.S. border being about $20 a day.

"Since the election of Donald Trump, Chinese corporate interest in Mexico remains, but there is some uncertainty," Delgado said. "Of course, there is the threat of new tariffs, but it feels like Mexico is in a better position to negotiate with the U.S. than China."

In the state of Nuevo Leon, just south of the U.S. border, industrial parks filled with Chinese companies have sprung up in recent years. Among the companies opening, equipment manufacturer Lingong Machinery Group announced plans to invest $5 billion in building an industrial park, and home appliance maker Hisense said it would spend $260 million to build a factory that is expected to create 7,000 jobs. Adjustable bed manufacturer Kesheng Technology invested US$30 million to build a factory, and Chinese furniture manufacturer KUKA Home opened a business in Mexico in 2020 and announced a US$150 million investment in expansion in 2022, which is said to employ 3,500 employees.

Investment deals announced by Chinese companies totaled nearly $4 billion in 2023, with a further $1.4 billion added in the first half of 2024, according to data compiled by research firm Rhodium Group. While this amount is relatively small compared with other countries with closer ties to Mexico, it is almost four times the average Chinese investment in Mexico from 2014 to 2020, the report found.

The industrial real estate footprint occupied by Chinese companies has doubled since 2021, with the largest investments coming from companies producing high-end products for the automotive and technology industries, according to SiiLA. More than half of the Chinese companies currently occupying industrial space in Mexico did not have a presence in the country before 2020, SiiLA said.

"The Chinese are creative, they're ambitious, they're aggressive, you can try to put tariffs on them and try to contain them as much as you can, but they're always going to try to find a bypass and that's what they've done with Mexico. ," Mahdi said. "You can try to close all the loopholes, but they will create a new loophole because that's what they do. Their country is committed to manufacturing for the world. They are the best at it and they want to continue to keep manufacturing for the world central position.”

To qualify as "Made in Mexico," a product must undergo significant modifications in Mexico, even if its components come from other countries. Under the USMCA trade agreement, if a Chinese company imports parts for appliances or furniture and assembles them in Mexico, the goods are classified as imported from Mexico rather than from China.

In addition to Chinese companies opening operations in Mexico, U.S. and other multinational companies are also looking to move manufacturing of products for the U.S. market from China to Mexico to avoid tariffs and reduce transportation costs and delivery times. China's share of U.S. imports has fallen from 22% in 2018 to 11.5% in the first half of last year, according to JPMorgan Chase. In 2023, Mexico will export more goods to the United States than China for the first time in more than two decades.

"We're seeing a lot of foreign companies coming into Mexico, not just from China but from countries like Germany and Japan, not just from manufacturing but from construction companies, logistics companies, packaging companies," Delgado said.

The shift of manufacturing from China to Mexico could also upend Trump's proposal to use the money the U.S. collects from tariffs to fund a variety of other policy priorities, since products produced there are typically duty-free. During Trump's final wave of tariffs on China, much of the revenue was used to pay farmers for losses caused by China's retaliatory tariffs on U.S. agricultural products.

This trend has not gone unnoticed by members of the incoming Trump administration. Trump's nominee for secretary of state, Republican Sen. Marco Rubio of Florida, wrote a letter in September urging President Joe Biden to prevent Chinese companies from "taking advantage of Mexico's duty-free access to the United States."

“Allowing Chinese companies—often benefiting from slave labor, stolen intellectual property, and massive state subsidies—to circumvent U.S. trade enforcement and exploit our free trade agreements threatens American production,” Rubio wrote. “We Our leaders must work hard to replace Chinese production with production from the United States and our trading partners. Congress passed a free trade agreement with Mexico, not China. Action must be taken immediately to prevent the Chinese Communist Party from exploiting the U.S.-Mexico-Canada Agreement. Weaponizing this important trade deal.”

Trump's threats and uncertainty over the future of the USMCA agreement have created widespread uncertainty for some companies. Tesla CEO Elon Musk is a Trump ally who has tasked him with cutting federal spending. In July, he told investors that he would shelve plans to build a factory in Mexico because of Trump's campaign threats to impose tariffs on cars shipped to the United States. State from Mexico.

"There's huge uncertainty. We don't know what's going to happen," said Ed Brzytwa, vice president of international trade for the Consumer Technology Association. "The president-elect is throwing out all these numbers. Companies can't possibly plan with this kind of uncertainty. They're in a holding pattern. They're all waiting to see. They're doing a lot of scenario planning and contingency planning."

But no matter how Trump's tariff threats materialize, Brzytwa doesn't see technology manufacturing returning to the United States because of high costs, worker shortages and the difficulty of building new manufacturing facilities in the United States. A CTA report found that moving production of all technology products from China and Taiwan back to the United States would cost companies $500 billion and lead to labor shortages.

"If the goal is to move production back to the United States, that's completely unfeasible," Buzytva said. “In the United States, we don’t have the existing capacity, and if we had the capacity, it would take a long time to build it. In terms of our workforce, we are at full employment — it’s almost impossible to find labor to produce mass production for consumption. technology products.”