International Trade

International trade is the set of commercial transactions between private individuals residing in different countries. Unlike internal trade, where commercial transactions are carried out within a relatively homogeneous economic, monetary, and legal space, international commercial transactions occur between private commercial operators in different legal systems and with marked economic and social differences (^{Huesca, 2012}; ^{Barberi, 2024}).

Currently, international trade is a fundamental part of the world economy. It represents an essential source of income and employment for many nations through various modalities, such as exporting and importing goods and services, foreign direct investment, and granting licenses and franchises. It is also governed by international rules and agreements, such as free trade agreements, the World Trade Organization (WTO) rules, and other bilateral and multilateral agreements.

International trade offers benefits such as diversification of production and access to new markets. However, it can also create challenges and imbalances, such as unfair competition and vulnerability to fluctuations in international markets. International trade is considered an essential tool for promoting the economic development of countries and their citizens.

Nearshoring

"Nearshoring" is the English expression used to refer to companies' strategy to manufacture closer to the market where they sell their products. If decades ago, the trend was "offshoring" (taking factories to China to produce cheaper), now the trend is a return to closer geographical areas. The objective of nearshoring is to reduce costs and improve efficiency while minimizing risks and maintaining high levels of quality and control through more excellent geographic proximity, a minor time difference, greater ease of project management, and a more significant cultural and linguistic similarity between the parties involved.

Problem Statement

The trade confrontation between the two largest economies in the world, the United States and China, goes beyond a mere trade war with tariffs, tariffs, and sanctions against each other. What is in conflict is the hegemony of international trade and the influence on economies in the rest of the planet. China leads exports of goods and services to the rest of the world, representing 14.2% in 2019 compared to the United States, with 8.3% in the same year. Furthermore, China serves as the first trading partner of 70% of the world's countries, reducing the preponderance of the USA. Additionally, the USA has a deficit with China of 316 billion dollars in 2020 alone, meaning that it imports more than it exports (^{OEC, 2021}). Therefore, this explains the interest in relocating American companies to allied countries, including Mexico.

Based on the arguments described, this research aims to analyze the context of the trade dispute between the United States and China and propose strategies to maximize the nearshoring trend (business relocation) to Mexico.

Sino-American dispute over international trade hegemony

For the development of the research, the following arguments have been detected that explain the loss of US hegemony in international trade:

a)Preponderance of China in international trade

As can be seen in Table 1, in two decades, China has tripled its position in terms of exports worldwide with 14.2%, and not even the United States, Canada, and Mexico together equal the Chinese volume so we can see the loss of commercial supremacy of the United States. Moreover, regarding imports, China has become an increasing consumer market, from 2.6% in 2000 to 8.7% in 2019 globally.

As shown in Figure 2, China was the leading trading partner in imports in more than 70% of the world's countries as of 2018-the exact representation that the USA had in 2000. So, you can see that the United States's economic hegemony has been lost in two decades.

Source: ^{Gil (2020)}

Figure 2 Countries in which China is the first trading partner in imports. 

b)Large US trade deficit with China

As shown in Table 2, the United States has had a general trade deficit (exports minus imports), and China has been the primary beneficiary of the trade exchange. It explains the interest of the North American government in reducing the trade deficit with the Asian giant by imposing tariffs of up to 25% on imports from China in 2018, in addition to reducing dependence on imports of strategic items such as microchips, for example. So many companies looked for a way to replace "Made in China" with "Made in Mexico." It is why Mexico resumed a strategic role promoted by the T-MEC (Free Trade Agreement between the United States, Mexico, and Canada) (^{Li et al., 2020}).

The USA's protectionist measures, aggressive use of export controls, and industrial policy have been aimed primarily at China. The US-China trade war that began in 2018 is estimated to have increased average bilateral tariffs by 17 %, disrupting supply chains and creating uncertainty (^{Bekkers & Schroeter, 2020}). Another US response is to privilege reliable trade partners by nearshoring, friend-shoring, or other measures. Although implementation has been limited so far, beyond the recrafting of the North American Free Trade Area, the concept of discriminating in favor of some WTO members at the expense of others is contrary to the fundamental principle set out in Article I of the WTO Charter that all members must be treated as well as the most-favored-nation (^{Pomfret, 2023}).

c)The three silk routes

As shown in Figure 3, China has been developing strategic infrastructure such as seaports, airports, and highways in different countries to facilitate trade exchange. Three routes emerge maritime, land, and arctic. Highlighting the latter with a reduction in time, distance, and logistical costs, for example:

Source: (^{Fuster, 2021})

Figure 3 China has been developing strategic infrastructure: Silk Roads 

d)SWIFT vs CIPS y SPFS

As can be seen in Graph 1, the American dollar maintains great hegemony as a reserve currency, which has been reduced due to the sanctions imposed on Russia for the war in Ukraine, a country that was excluded from SWIFT (Society for World Interbank Financial Telecommunication) and its reserves in dollars were frozen, which are estimated at 300 million dollars, so the Russian government cannot access that capital and due to the fear of other countries derived from this, they have sought to reduce their reserves in the American dollar and use their currencies in international trade through the CIPS (Cross-Border Interbank Payment System) promoted by China and the SPFS (Financial Message Transfer System) controlled by Russia, to prevent their transactions from being frozen since sanctions disrupted Russia's trade with the rest of the world, which had severe implications for sanctions-imposing and other countries' businesses, the consequences of these sanctions extended beyond the geopolitical arena, affecting businesses and investors worldwide (^{Abakah et al., 2024}).

Source: ^{Marín (2022)}.

Graph 1 Most Used Reserve Currencies (billions USD, 2021) 

e)Comparison of countries based on GDP

As shown in Graph 2, the USA has held the leadership for decades by serving as one of the most important economies worldwide without any competition. However, since 2011, China has had constant growth that has maintained the trend, which could replace the United States as the leading world power before 2030.

Source: ^{Expansión (2021)}.

Graph 2 GDP growth of the leading countries 

As Table 3 shows, China was the only country with growth in 2020, which allowed it to recover faster in the reactivation of foreign trade. It explains that while container ships arrived and were stacked in American and European ports to be unloaded, they returned empty to China, further causing a shortage of containers and increased freight rates.

US infrastructure plan: an opportunity for Mexico

US President Joe Biden celebrated the signing of the Infrastructure Plan in the USA, one of his greatest successes at the national level since his arrival at the White House. With this plan, he aims to transform the economy in the face of the effects of climate change (^{Hurtado, 2021}).

As seen in Table 6, the most important investments are the modernization of roads and bridges, followed by ports and airports. These are characterized by obsolete infrastructure that hinders the correct management of the supply chain. Analysts estimated that the US infrastructure plan approved by the US Senate will have a positive impact on the Mexican economy (^{Castañares & Hernández, 2021}).

Ernesto O'Farrill, president of Grupo Bursametrica, pointed out that Mexican exports could double if the current administration takes advantage of all the opportunities that will arise with this plan and considered that business associations should push to design a strategy to attract investment and promote employment (^{Castañares & Hernández, 2021}). Especially in large projects such as:

The Interoceanic Corridor of the Isthmus of Tehuantepec (CIIT), as of June 14, 2019, was published in the Official Gazette of the Federation, the Decree that creates the (CIIT), which will be the body responsible for implementing this Regional Program (^{SEGOB, 2018}).

The largest industrial park or multimodal logistics hub in America, the TMex Park, in which it is estimated that 65,000 direct and indirect jobs will be created, which will promote entrepreneurship through an investment of 25,000 million pesos with a privileged location since it is located 3 kilometers from the new Felipe Ángeles International Airport (AIFA) (^{Arturi, 2022}).

Train network, a project promoting the fourth transformation headed by President Andrés Manuel López Obrador, is intended to be completed in Mexico by 2050. It will have 11 future railway lines connecting the entire country by 2050. The routes would be: Train of the Pacific, with an extension of 4,700 kilometers; El Chepe (673 kilometers); Western Train (2,250 kilometers); Eastern Train (2.00 kilometers); Transversal Train (1,200 kilometers); Gulf Train (1,650 kilometers); Bajío Train (1,500 kilometers); Central Train (1,300 kilometers); Isthmus Train (300 kilometers); Oaxaca Train (750 kilometers) and the flagship work of the current government, the 1,800-kilometer Mayan Train (El economista, 2022). Joel Virgen, director of analysis at Out of the Box Economics, considered that the benefit to the Mexican economy will become more evident in the medium term, mainly in sectors such as automotive and electronics, to mention a few (^{Castañares & Hernández, 2021}).

Amín Vera, director of economic analysis at BW Capital, indicated that the plan directly benefits Mexican companies that operate as suppliers to the US construction sector or are part of the production chains that will improve the network of goods. These companies are public companies in that country, such as Cemex or Grupo Cementos Chihuahua (^{Castañares & Hernández, 2021}).

"Seen from the GDP side, it would be industrial activity that would benefit the most, and seen by components of aggregate demand, exports would have a strong boost, generating surpluses in the trade balance, which tends to translate into a higher level of income for Mexico, benefiting its recovery," said Alain Jaimes, economic analyst at Signum. Research (^{Castañares & Hernández, 2021}).