Mexico Is China’s Trade Middleman

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We welcome you to the Greater Caribbean Monitor (GCaM). In this issue, you will find:

•Mexico Is China’s Trade Middleman

•Are We the Chump on the Latin American Block?

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•Mexico Is China’s Trade Middleman
754 words | 4 minutes reading time

Few are unaware of Washington’s post-pandemic nearshoring push. This move is not only economic: the United States wishes to diminish the risks associated with its trade dependence on a strategic rival of China’s caliber.

• The pandemic demonstrated the fragility of the “lean” supply chains encouraged by globalization. Western countries were surprised to learn that having hollowed out their industrial base, even face masks had to be imported from China.

• Mexico has perhaps been the prime beneficiary of Washington’s sudden decoupling zeal. Just last year, the country replaced China as the United States’ largest trading partner.

• Yet the statistics are somewhat deceptive: Mexico’s border states, it is true, are booming. Local warehouse purveyors have profited handsomely, but it must be recalled that Mexico has become a middleman of sorts for China. 

Panorama. In Washington, politicians seem satisfied and self-congratulatory, although the Department of Commerce occasionally acknowledges the issues. Since 2017, when Trump initiated the trade war with Beijing, Chinese car parts exports to Mexico have increased by 2.6 times. Many of these will eventually end up in the United States in some capacity.

• Once goods arrive in Mexico, they must receive some sort of value-add, lest ordinary tariffs be imposed upon export to the United States. This explains Chinese firms’ copious investments in Monterrey industrial parks, even though production costs are substantially higher than in China.

• Reading between the lines is not difficult: Chinese cars must pay a 25% tariff upon arrival at a U.S. port; for Mexican cars, the figure is a mere 2.5%. The same thing happens with car components: Chinese parts are subject to the same 25% tariff; Mexican parts only pay a tariff of between 0% and 6%. 

• Mexico is not the only intermediary. The Philippines, Singapore, India, and Vietnam are also involved: their imports from China and exports to the United States are booming. These countries attract investments seeking to avoid the risks of China without abandoning the convenience of Asian supply chains. 

Between the Lines. An anti-Chinese consensus now exists in Washington. Beijing is deemed the United States’ chief rival; the naïve post-Cold War expectation of China’s prompt democratization has been abandoned. The United States now sees its vast trade links with China as a risk that must be corrected, or at least cautiously managed.

• Complete decoupling from China is unlikely, yet few politicians publicly call for rapprochement. California Governor Gavin Newsom, who visited Beijing late last year, is arguably the most pro-China figure in U.S. politics.

• Policy wonks and Commerce Department officials nonetheless fear that nearshoring’s success will only exist in government statistics. Indeed, the United States wants new supply chains, but it does not wish to see them coopted by Beijing, which could then use investments as a diplomatic tool.

Parenthesis. Much of China’s exports are in no need of middlemen. De minimis rules allow for small packages—those worth under $800—to enter the country tariff-free. E-commerce giants like Shein and Temu depend on these provisions, which they have unceasingly abused. 

• At a quick glance, the norm is completely logical. It aims to alleviate the workload of customs officers, hence why in 2016, the upper limit was increased from $200 to $800. 

• For China, these small-value orders are of immense importance: exports attributable to e-commerce have a cumulative value of $258 billion, which is equivalent to 7% of China’s total exports. 

• U.S. Customs evidently did not anticipate the huge volume of these relatively small shipments, which saw a 46% increase in 2023 alone. U.S. trade officials are likely to clamor for stricter rules.

The Balance. The White House has an additional weapon: stricter rules of origin—the guidelines for determining a given product’s nationality. This would harm China, but the damage would not be terribly devastating; in fact, the country has realigned its industrial production to emphasize intermediate goods, which can be finished or packaged elsewhere and finally delivered to the United States as Mexican or Vietnamese, rather than Chinese, products.

• What China does is not illegal, much less unusual. Mexico, it is true, has a vast domestic market that serves as an insurance policy for foreign investors. Yet the vast majority of foreign investments in Latin America simply wish to take advantage of local FTAs and privileged access to the U.S. market.

• In any case, the United States has partially achieved its objectives. Even though Chinese companies have found workarounds, they have had to move and are at the mercy of U.S. regulations. 

• Central America cannot ignore the Sino-American rivalry, which could well present an opportunity. Nicaragua, for example, has opted for China. Guatemala, for its part, seems to be making demonstrations of loyalty to Washington.

Simon Hankinson
•El CNE y Oxfam tratan la Ley de Competencia
1,244 words | 6 minutes reading time

This commentary, including the above image, originally appeared in The Daily Signal, with whose permission it has been syndicated.

The interests of our Latin American friends (and enemies) are not the same as ours when it comes to immigration. They want to get foreign migrants out of their territories while making money. They also want their own access to the U.S. labor market—for example, Mexicans working in the U.S. sent back $55 billion in 2022, and remittances from the U.S. are 19% of Guatemala’s gross domestic product, 28% of Honduras’, and 26% of El Salvador’s.

Our Latin American neighbors have every incentive to pass the illegal immigration buck to us. Only tough diplomacy, backed up by sanctions, will make them stop. Unfortunately, the U.S. response has been weak and deferential, unworthy of the most powerful nation in the world.

In late 2023, President Joe Biden sent his secretaries of state and homeland security with a begging bowl to Mexico to ask for help stemming illegal immigration into the U.S. The U.S. had shown its ability to apply economic pressure on Mexico just a few days before by shutting down commercial ports of entry.

Mexican President Andres Manuel Lopez Obrador (also known as AMLO) offered vague promises to stem the illegal alien flow through his country, but in exchange, he first wanted more aid money for their countries of origin. That’s the same “root causes” approach agreed to in the Los Angeles Declaration—wishful thinking and billions of dollars that have borne zero results.

The “root causes” approach suggests that poverty in their home countries is what’s driving millions of illegal aliens to the U.S., and if the U.S. just gives those countries more foreign aid, the flows will stop.

Second, AMLO wanted the U.S. to end economic sanctions on Cuba and Venezuela. But while fellow socialist AMLO is friendly with these oppressive socialist regimes, delivering this would be politically hard, even for Biden.

And it’s not just Mexico that’s failing to crack down on illegal migration through-traffic.

Not long ago, Colombia was in the grip of armed insurgents and drug cartels. With U.S. help, the government retook control of the country and reestablished the rule of law. But in 2022, the people elected former rebel Gustavo Petro, a socialist who has allowed criminal armed groups to flourish again. These groups have turned to alien smuggling as a profitable and virtually unpunished enterprise. Until around 2021, there were hardly 20,000 illegal immigrants passing through the Darién Gap between Colombia and Panama each year. Last year, it was over half a million—most, if not all, of them heading to the United States. The Colombian and Panamanian governments are doing little to stop them.

A Colombian transnational criminal organization called the Clan del Golfo is making millions bringing people through the Darién. Clan de Golfo was described by the U.S. attorney general as “one of the largest cocaine trafficking organizations in the world,” involved in the “exportation of massive amounts of cocaine to the United States.” The governor of the Colombian region at the gap, Chocó, seems happy to facilitate. Maybe he gets a cut—or maybe he doesn’t want to end up another one of the Clan’s long list of assassinated government officials.

Nicaragua’s Marxist dictator Daniel Ortega, an enemy of the United States since the Ronald Reagan administration, is making millions by charging transit visa fees to illegal immigrants headed to the U.S. from all over the world and going through his nation. In November 2021, Nicaragua lifted visa requirements for Cubans, then Haitians, Indians, Mauritanians, Senegalese, Uzbeks, and more.

A Florida grand jury reported that Ortega “has used 260 charter planes … from Haiti (approximately 31,000 Haitians and 17,000 Cubans) to charge between $3,000 and $5,000 each to permit the aliens to land in Nicaragua and make their way north to the U.S. border.”

The Guatemalan news site RepublicaGT reported that in 2023, 150,000 foreigners intending to enter the U.S. illegally came to Nicaragua by land and 300,000 more by air, making nearly $70 million for the Ortega regime. According to Manuel Orozco of the Inter-American Dialogue, a U.S.-based international affairs think tank focused on the Western Hemisphere, “Nicaragua is responsible for at least 10% of all migration that has arrived into the Mexico-U.S. border.” Orozco says Ortega’s motive is “a deep hatred of the United States.” As a bonus, Ortega makes money and extorts the U.S. to end economic sanctions.

In response to the conveyor belt of charter flights into the Americas carrying one-way passengers bound for the United States, the Biden administration’s response has been desultory. First, the administration tried asking countries to stop the flights, which worked only with Haiti. Then last November, the State Department targeted the Nicaraguan route by putting visa restrictions on “owners, executives, and senior officials of charter flight, ground, and maritime transportation companies providing transportation services designed for use primarily by persons intending to migrate irregularly to the United States.”

The tactic is as likely to succeed as New York City Mayor Eric Adams’ lawsuit against charter bus companies for bringing illegal aliens from Texas to his city.

In Guatemala, the U.S., until recently, had an ally prepared to help us. Guatemala’s geography is ideal to block mass illegal migration from farther south, which is why the Trump administration made deals with Guatemala, El Salvador, and Honduras to limit traffic through their countries and accept illegal immigrants returned by the U.S. But newly installed Guatemalan President Bernardo Arévalo, though much preferred by the Biden administration to his conservative predecessor, is far less likely to cooperate on reducing illegal migration.

In El Salvador, popular President Nayib Bukele charges a $1,000 transit visa fee to people from Africa and India who are clearly heading to the U.S. But an extra grand is hardly going to deter illegal immigrants prepared to pay thousands to get here. One Senegalese man with knowledge of migrant trafficking networks said the going rate was about $8,000 per head. So Bukele can look tough, do little to help, and make a fat profit at the same time.

Venezuelan President Nicolas Maduro hates the United States. For him, sending hundreds of thousands of his discontented people our way is a win/win. When they get here, most will work, legally or illegally, and send money home to prop up the economy Maduro and his communist predecessor Hugo Chavez ruined. As for the criminals, if they are aligned with Maduro’s own interests, he may get a cut of their illicit earnings. If they are rivals, then sending them to the U.S. gets rid of a potential risk to him and dumps it on us.

And it’s not just Venezuelan illegal immigrants Maduro is facilitating—many of the Haiti-to-Nicaragua flights are on Venezuelan charter airlines that could only operate with Maduro’s approval.

American cities are now feeling the presence of Venezuela’s Tren de Aragua criminal gang. According to an FBI agent, the Tren could be working with MS-13. An alliance between two ultraviolent gangs with a reach throughout the Americas is a major law enforcement problem for the federal government and for cities like New York.

Héctor Guerrero, the leader of Tren de Aragua, escaped prison last year and may now be in the United States. It wouldn’t have been hard for him to hide among the roughly 2 million “gotaway” illegal border crossers that Biden’s negligence has allowed in so far.

The U.S. has the diplomatic and economic leverage to make Latin American countries stem the flow of illegal migration through their countries. But rather than do that—and control our own border—the Biden administration asks for billions more from Congress to continue supporting  chaotic and dangerous mass illegal migration.