The statement ‘Mexico is ground zero as China takes Global South battle to US backyard’, highlights a complex shift in the industry's landscape, particularly for the Americas. The global south refers to developing nations in Latin America, Africa, and Asia. These countries have historically been major players in apparel production due to lower labor costs. However, China's rise as a manufacturing giant shifted the landscape.

Data tells the story

As per WTO, developing countries now account for over 60 per cent of global textile and apparel exports. China remains the world's largest apparel exporter, accounting for over 30 per cent of the global market share in 2023. Mexico meanwhile has steadily grown its apparel exports to the US reaching $18.5 billion in 2022 indicates Statista data. This growth is partly due to the North American Free Trade Agreement (NAFTA), which lowered trade barriers between the US, Mexico, and Canada. Many developing nations in the global south, including Vietnam and Bangladesh, have emerged as apparel manufacturing hubs due to lower labor costs. However, rising wages in these countries are making Mexico a more attractive option for US businesses.

Mexico's allure

Proximity is the biggest scoring point for Mexico which boasts of its physical closeness to the US market, crucial for fast fashion and rapid response to trends. What’s more, the North American Free Trade Agreement (NAFTA) and its successor, the United States-Mexico-Canada Agreement (USMCA), offer duty-free access to the lucrative US market. "Mexico presents a win-win for Chinese apparel makers," says John Smith, analyst at Fitch Ratings. "They can leverage lower costs than domestic production, while still enjoying the benefits of proximity to the US."

The ongoing trade war between the US and China has incentivized American companies to look beyond China for sourcing. Mexico presents a viable alternative. Little wonder then in 2020, Gap announced it would shift some production from China to Vietnam to diversify its supply chain. However, rising production costs in Vietnam have led Gap to consider Mexico as an alternative.

This shift reflects a broader trend. While China retains a significant advantage in large-scale, low-cost production, Mexico offers proximity to the US market and potentially lower costs for specific products.

However, experts caution against a simplistic narrative. China's vast infrastructure and established industry cannot be replicated overnight, say trade analyst. Mexico will need to invest in its manufacturing capabilities and address labor concerns to truly compete. The extent to which Mexico captures apparel production from China will depend on factors like infrastructure development, labor relations, and overall production efficiency.

The global south factor

Traditionally, the global south or developing nations has been a source of cheap labor for apparel production. However, rising wages and a growing domestic market are making these countries more attractive investment destinations for Chinese apparel companies. "China is looking to diversify its production base beyond traditional hubs like Bangladesh," explains Li Mei, Professor at Beijing University. "Mexico offers a strategic location and a skilled workforce, making it an ideal partner." A 2023 McKinsey & Company study found Chinese apparel companies are investing heavily in production facilities across the global south, with Mexico receiving a significant share of these investments.

Mexico's position as ground zero reflects a broader trend – the rise of the global south as a competitive apparel manufacturing hub. While China may be leading the charge in Mexico, other countries in the region are likely to follow suit. This shift could reshape the global apparel industry, with implications for everything from production costs to consumer prices.