In recent years, international trade has changed significantly, making the Mexico-China relationship a key player in the global economy. This trade connection, shaped by both competition and cooperation, highlights how emerging economies are reshaping global markets today.
The trade relationship between Mexico and China has undergone a radical transformation since the establishment of diplomatic relations in 1972. In the early decades, trade exchanges were marginal, limited to basic products and raw materials. However, China’s accession to the World Trade Organization (WTO) in 2001 marked a decisive turning point.
Bilateral trade volume has multiplied more than 20 times since 2000, reaching $110 billion in 2023. This extraordinary expansion reflects not only China’s economic growth but also Mexico’s progressive integration into global value chains. However, a significant trade deficit persists for Mexico, which exceeded $40 billion in 2023, highlighting the structural challenges of this relationship.
Source: China's Ministry of Commerce / China Briefing
Even without a formal free trade agreement, Mexico and China have developed a strong regulatory framework to support their business relationship. Key mechanisms include:
However, the presence of the USMCA (T-MEC) introduces an additional layer of complexity, especially in areas such as rules of origin and regional content requirements.
Mexico and China's participation in global value chains reflects a dual dynamic of competition and complementarity:
Mexico has consolidated its position as a manufacturing hub, producing vehicles and components with an added value of $130 billion annually (It’s projected to become the 5th largest vehicle producer globally by 2025, according to the Mexican Automotive Industry Association (AMIA)). China, on the other hand, leads in electric vehicles and batteries, with investments exceeding $50 billion in new production capacity.
Complementarity is most evident in this sector. China supplies components and subassemblies, while Mexico specializes in final assembly and logistics for the North American market (did you know that Mexico is the world's largest exporter of flat screen TVs?). This model has generated significant technological clusters in regions like Jalisco and Baja California.
A growing area of cooperation is the renewable energy sector. China dominates global production of solar panels and wind turbines, while Mexico offers ideal geographic conditions and preferential access to the North American market. According to the Chinese Embassy in Mexico, there are a more than a dozen companies investing in the country.
For Chinese companies, Mexico represents not only an attractive market but also a strategic gateway to the dynamic North American market thanks to the United States-Mexico-Canada Agreement (USMCA). However, this opportunity comes with challenges, including tax regulations, compliance with USMCA standards, and US-China trade tensions.
For Chinese companies, establishing operations in Mexico (especially for companies considering shelter services in Mexico), can help overcome trade barriers, such as tariffs imposed on goods directly imported from China. According to data from the Ministry of Economy, Chinese investment in Mexico reached 2.5 billion dollars until September 2024, with the automotive sector standing out as the main recipient of capital.
However, compliance with specific USMCA regulations , such as the requirement that steel be produced in North America, adds complexity to operations. This forces Chinese companies to rethink their supply chains, seek local suppliers, or invest directly in production infrastructure in Mexico.
Additionally, nearshoring in Mexico not only facilitates entry into the U.S. market but also reduces logistics costs and transportation times compared to the traditional production model in Asia. This competitive advantage can be crucial for industries such as electronics and electric vehicles, which face increasing demand in North America.
The Mexico-China Agreement to Avoid Double Taxation, in effect since 2006, helps businesses cut tax costs. It sets preferential rates for dividends, interest, and royalties while preventing double taxation. However, Chinese companies must ensure they have the right documentation and understand permanent establishment, which determines when they are taxed in Mexico.
Additionally, the Bilateral Investment Treaty (BIT) between both countries provides legal protection against risks like expropriation or unfair treatment. Still, having strong compliance processes and smart tax strategies is essential for companies to maximize profits and reduce risks.
Effective communication is one of the biggest challenges in Mexico-China business relations. Language differences are just the tip of the iceberg; differences in communication and negotiation styles are equally significant:
The key to success lies in finding a balance between maintaining Chinese corporate values and adapting to Mexican market needs and expectations. Companies that achieve this cultural integration not only survive but thrive in the Mexican market.
The trade relationship between Mexico and China is a clear example of how global supply chains are evolving. The mix of competition and collaboration in key industries, along with opportunities from nearshoring and trade agreements, keeps this partnership at the heart of international business.
However, its success depends on how well both countries can navigate cultural, regulatory, and logistical challenges to create a mutually beneficial trade environment.