Chinese companies have found a perfect route to sell their products beyond the reach of U.S. tariffs. That is none other than the U.S.’s close neighbor Mexico.

As Nikkei Asia reports, Hector Tijerina, executive director at Invest Monterrey, says, “It was not common for us to help Chinese companies. But after the tariffs were imposed by the U.S. government to China in 2018, a lot of Chinese companies started to knock on the door.”

They are actively setting up stores in Mexico, especially near U.S. borders, with some pouring generous investments to install manufacturing plants in the country.

Hisense, a Chinese appliance producer, is spending $260 million to establish a factory in Mexico for exports to the U.S. Man Wah Holdings, a Hong Kong furniture manufacturer, is constructing a $300 million facility. At the same time, Kuka Furniture, a Zhejiang 浙江 company, was reported to have been increasing its capacity in Mexico since March.

Thanks to the U.S.-Mexico-Canada Agreement, certain Mexican products can enter the U.S. tariff-free on the condition that they meet some demands. One of such is to have a proportion of its components coming from North America.

Samuel Pena, vice president at Hisense’s Mexico unit tells Nikkei Asia, “Hisense Monterrey is, technically speaking, a Mexican legal entity, and it has all the benefits under the free trade agreement.” 

Sofa maker Zoy Home Furnishing puts it clearly, “We want to avoid international trade barriers.” The company has just established a new factory in the Mexican state 

Nuevo Leon in April.

Besides U.S. tariffs, Chinese firms are also moving production outside of the mainland over COVID-19 curbs in their homeland. According to Invest Monterrey, more Chinese businesses than any other nation save the U.S. are considering making their initial investments in Monterrey, with 70 Chinese companies recorded.

Chinese investment in Mexico has multiplied since the U.S. began to impose up to 25% levies on a wide array of Chinese goods.

Citing the Mexican Secretariat of Economy, Nikkei Asia says that mainland Chinese and Hong Kong-based businesses spent $606.3 million in the U.S. neighbor last year. It is a 76% increase from the previous year and the greatest since tracking began in 1999. 

This year so far, 1,289 Chinese businesses have invested in Mexico. The Secretariat of the Economy reports that China has overtaken the U.S. as Mexico’s second-largest import partner.

It is unclear how many of the Chinese commodities have successfully made their way to America without tariffs, but China’s exports to Mexico rose 50% to $101 billion in 2021. Meanwhile, Mexico’s exports to the U.S. have soared 30% to $398.9 billion since 2017.

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