China Trade War Could Push Taiwan’s Foxconn to Build Factories in Mexico

A ‘Made in Mexico’ iPhone 13?

Taiwanese manufacturers Foxconn and Pegatron are eyeing new factories in Mexico as a way to reduce supply chain risks in light of COVID-19 and U.S.-China disputes. The plans could usher in billions of dollars in new investment in Mexico. Foxconn and Pegatron are electronics manufacturing contractors perhaps best known for making Apple’s iPhones, and have historically relied on mainland China’s lower-cost manufacturing sector to meet global demand. But questions about global dependence on China’s manufacturing, and U.S. moves to limit the access of made-in-China technological components to the U.S. market, have spurred companies to consider alternatives.

From ‘world’s factory’ to ‘manufacturing ecosystems’ . . .

Foxconn is likely to make a final decision on the move later this year. A Mexican expansion would build on the firm’s already significant presence in Mexico, with five factories in the country making servers and televisions. While pandemic and economic challenges have increased business risks in Mexico, Foxconn plans to shift away from China and towards regional manufacturing hubs. Earlier this month, the company announced plans to shift more Chinese manufacturing to Southeast Asia and other regions, with company Chair Young Liu telling investors, “no matter if it’s India, Southeast Asia or the Americas, there will be a manufacturing ecosystem in each.”

Capitalizing on CUSMA . . .

The drive to preserve North American market share goes beyond iPhone sales, with analysts anticipating that other electronics, medical, and automotive firms in Asia will drive further investments into Mexico. While these immediate shifts primarily reflect a desire to shorten supply chains and be more regionally based amid COVID-19, more structural shifts could come from provisions in the Canada–United States–Mexico Agreement (CUSMA), which encourages North American companies to source components from within the trade bloc. While Canada is unlikely to compete with lower-cost manufacturers on a number of goods, it could present an attractive location for select high-value manufacturing, services for relocated firms, or final goods processing as firms look for new investment locations in North America.