Why US market is no longer top priority for Chinese companies building foreign factories

This year’s escalation of the US-China trade war has led many Chinese companies to rethink their overseas expansion strategies, with accessing the American market no longer their top priority when considering building factories in foreign countries, industry insiders said.

There had been a “drastic downshift” in inquiries from Chinese companies seeking land to rent or purchase in Mexico, one of their hottest overseas investment destinations in the past, said Jack Lee, an industrial property agent based in the United States whose clients are mostly Chinese firms.

Mexico had become a popular choice since US President Donald Trump’s first term, when he began to increase tariffs on made-in-China products, thanks to its proximity to the US and its participation in the United States-Mexico-Canada Agreement (USMCA). The free trade agreement guaranteed that as long as a certain percentage of content was made in North America, products could enter the US market free of taxes.

But amid the escalated trade tensions between the US and China since Trump returned to the White House in January, doubts have been rising about whether products made by Chinese companies in Mexico will continue to enjoy the preferential treatment. USMCA is up for review next year and has already been breached by Trump with tariff increases on items including imported steel and aluminium.

“Nobody was there [in Mexico] to make a decision in the last couple of months because there has been lots of uncertainty,” Lee said. “For those who already have their investment in Mexico … they are not expanding either; they are just barely making a minimum right now.”

The vacancy rate for industrial property in Monterrey – a major industrial city in northern Mexico that has attracted the most Chinese companies so far – had grown to 5.6 per cent, up from below 1 per cent in the past four years, Lee said.