China's Labor Arbitrage May Now Be Turning With a Vengeance
For US manufacturers exploring production facilities outside the country, the comparison to the MXN (at a record low versus the USD this month) to the CNY is particularly important. Not only has the MXN depreciated about 50% cumulative versus the CNY over the last decade, but it is actually easier to move goods from Mexico than China to US plants/consumers. On Bloomberg TV this morning, co-host Brendan Greeley indicated that more auto parts are produced in Mexico than in the US, a comparison that is unlikely to change with the USD up about 20% versus the MXN over the last year. While auto parts has traditionally been a strong export from Mexico to the USD (large, heavy items that are more cheaply shipped from Mexico than China), there is increasing potential that additional production activity could be relocated from more expensive Chinese producers to more competitive ones in Mexico, and also to S. Korea, Brazil, India and, if the weakness in the CAD persists, Canada. —Robert Sinche, Amherst Pierpont Securities.
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