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Peter Zeihan

Geopolitical Strategist

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Mexico’s bid to replace China in meeting US manufacturing needs

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Peter Zeihan

Geopolitical Strategist

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In the wake of the U.S.-China trade war and the Covid-19 pandemic, low-cost manufacturing is shifting from China to countries like India, Vietnam, and Mexico. Thanks to significant new factories and investments, Mexico is now a major trading partner for U.S. companies like Tesla, GM, and Kia. But can Mexico fully capitalize on this opportunity?

Straight Arrow News contributor Peter Zeihan believes that as China slips, Mexico City, boasting what he calls the “largest untapped workforce in the world,” could be the game-changer.

Excerpted from Peter’s Oct. 12 “Zeihan on Geopolitics” newsletter:

If you’re an American considering picking up a new language and have narrowed it down to Chinese or Spanish – it should be a no-brainer. As China slips into utter collapse, our southern neighbors will pick up the slack, and “hola” will get you much farther than “nǐ hǎo”.

As the U.S. pulls manufacturing from China, we’ll look to Mexico City to fill that void. This region not only holds over half of Mexico’s population but also represents the largest untapped workforce globally. So, the workforce is there, but we’re still missing a couple of pieces of the puzzle.

A massive industrial buildout will have to happen for this transition to work – and quick, too. I’m talking about new rail and border infrastructure, beefing up the I-35 corridor, and improving connections within the U.S. manufacturing industry.

If the U.S. and Mexico can execute this buildout within the next five years, finding an alternative to Chinese manufacturing will be much easier. However, if the two amigos don’t get aggressive soon, we might have to throw a couple more languages into the curriculum.

Everybody, Peter Zion here coming to you from Mexico City. And for those of you back in the States, this is a town you’re going to hell have to get used to get to know very well, because it’s the solution to a lot of the upcoming problems. Now, for those of you guys who have been following me for a while, you know that I have been very concerned that the Chinese system is breaking, the demographic situation is terminal, the government itself seems to be incapable of making decisions now. And Chairman G is basically purged the entire system of anyone with a positive IQ, which means that all of the manufacturing industrial base that exists in China is something we’re gonna have to get by without very, very soon. The question is, whether that’s one year from now, three years from now, or 10 years from now, but certainly no more than that. Which means if we still want stuff, we’re gonna have to make it differently. And that’s where Mexico comes in. Now, a lot of folks point to the nexus between Texas and northern Mexico has been a very successful model. And I agree, over the last 35 years, the industrial plant that’s built up there, has made itself all by itself, the third or fourth largest on the planet, next to China, Inc, of course, and the German system in Europe. But that is not probably something that we can pull off again, I mean, yes, there are ways to improve that with infrastructure with labor with capital Tech, I agree with all of that we should do all of that. But the bottom line is that Texas has run out of people. And it has now had to recruit from the rest of the United States just to expand its footprint from where it is now. And Northern Mexico has run out of people, because they’re all already working in that Texas, Mexico synergy. And it’s great, and it’s wonderful. And it’s not done, but it can’t double or triple. And that’s exactly the scale of what we need to do. The solution is to integrate the rest of the United States with the rest of Mexico, specifically the greater Mexico City region, which is home to over half of Mexico’s population. And it’s the largest untapped workforce in the world at the moment. That means massively expanding the infrastructure that connects the two countries. Today, about 80% of the traffic and manufacturing between Texas and northern Mexico is by truck, which is among the least efficient ways that you can move things, but it does allow for a lot of small connections. With small and medium sized enterprises on both sides of the border contributing to very complicated supply chains, particularly in automotive, we need to think bigger, we need a better transport system to take things at bulk. So there’s not necessarily less integration between the various steps on both sides of the border. But the value add can really explode because we can do things at scale. And for that, we need rail, we need a rail system to connect areas beyond the Texas triangle to the Mexico City core. Right now there’s only one multimodal rail system at all that comes south from the border as far south as the very edge of the Mexico City complex. We need to expand that system by at least a factor of four in the not too distant future. In addition to expanding the border infrastructure, in addition to expanding America’s i 35 corridor, in addition to expanding the Texas triangles connections to the rest of the manufacturing zones in the United States, if we pull this off in the next five years, we’re going to be in great shape. And if we don’t, well, then we’re gonna have to figure out what sort of stuff we don’t actually want. No pressure

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