Moving operations to Mexico is one of the possibilities being considered by firms aiming at the U.S. market due to fluctuating trade policies.
Leoch International Technology, a Chinese battery manufacturer listed in Hong Kong, has been moving forward with the initial phase of its $200 million plant in Mexico, aiming for an operational start by June. The company is among numerous others navigating the uncertainties brought about by fluctuating U.S. tariff policies.
The executive director and chief investment officer, Helen Hong Yu, stated that the firm initially selected the nation due to its tariff-free benefits under the United States-Mexico-Canada Agreement and its closeness to the U.S.
Establishing operations directly in the US would have also entailed greater expenses, and recruiting talented individuals would have proven more challenging.
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She stated that the firm, listed in Hong Kong, also intended to go public with its operations outside of China in the United States.
However, US President Donald Trump’s extensive tariff policies took her and many others by surprise.
She mentioned that when Trump abruptly increased tariffs, everybody felt rather dreamlike and questioned whether he would actually enforce such hikes.
After assuming the presidency, Trump increased tariffs on Chinese goods to 145 percent as part of an ongoing series of retaliatory measures between China and the United States. However, he has temporarily halted the imposition of reciprocal tariffs on additional U.S. trading partners for a period of 90 days.
Although Mexico hasn’t been included in the list of nations subjected to reciprocal duties yet, it isn’t completely safe from potential issues. Some products originating from the country could still face tariff implications unless they meet the criteria set forth by the current trade agreement.
Hong noted that the recent tariffs differ from those imposed on their goods entering the U.S., which were 25 percent for products made in China and 3.7 percent for items coming from Vietnam and Malaysia.
She mentioned that despite the looming tariffs, the firm continued with its plan to move its factory to Mexico. This was done although manufacturing expenses in that country were 15 percent more expensive compared to those in China.
The inaugural stage of the new facility in Monterrey city, situated on a 200-acre site, is scheduled to conclude in May with operations beginning in June. This marks their company’s first property in Mexico, and initially, this setup was projected to cater to approximately 15 percent of total sales demands, as stated by Hong.
“She mentioned that they currently operate a fairly small leased facility in Mexico which has been running for about a year now.” She was alluding to another assembly plant valued at tens of millions of yuan within an industrial park located in Monterrey, situated in the northeastern region of the country close to the U.S. border.
Leoch intends to relocate its manufacturing for the U.S. market from Vietnam, Malaysia, and China to Mexico. In the previous year, the firm’s earnings in the Americas made up 15.9 percent of its total revenue of 16.1 billion yuan (approximately US$2.2 billion).
The European, Middle Eastern, and Southeast Asian markets are mainly supplied through productions based in Malaysia and Vietnam. Meanwhile, the company’s activities in India focus on fulfilling the local demand within the country.
Hong forecasted that sales would increase this year by 20 to 30 percent, fueled primarily by the surge in demand for industrial batteries for data centers, the rapid expansion of artificial intelligence, and the ongoing requirement for frequent replacement of standard vehicle batteries.
She mentioned that Leoch employed FOB (Free on Board) or CIF (Cost, Insurance and Freight) conditions for deals with U.S.-based buyers. This arrangement shifted the tariff burden onto the customers, leading to the conclusion that “their profits remained unchanged.”
The firm operates 11 plants in Mainland China along with 10 international facilities, extending its reach across 150 areas worldwide.
Hong noted that Leoch’s experience with international expansion provided it an advantage over competitors who may find it difficult to relocate their production from Southeast Asia to different areas when faced with extensive tariff implementations.
One of the nations that profited from firms adopting a “China plus one” approach was Vietnam, which involved establishing portions of their supply chains in nearby economies as protection against tariffs and geopolitical uncertainties.
However, the tariffs have cast doubt on these plans, as Vietnam faces one of the highest rate threats.
Marshall Lee, who leads climate and sustainability efforts at Marsh Asia, an insurance broker and risk management firm, cautioned that firms considering relocating their production must consider factors such as workforce accessibility, geopolitical risks, interactions with local enterprises, energy supply stability, and establishing financial accounts.
Ben Simpfendorfer, a partner at the management consulting firm Oliver Wyman, stated that nations with robust free trade pacts are considered “top choices for businesses contemplating relocation.”
He observed that international corporations desired vendors with operations across several nations for adaptability.
“Moving within a global brand’s supply chain can mitigate risk; relocating independently poses significant danger,” according to Simpfendorfer. “Appointing an effective chief financial officer and human resources leader is crucial for managing fiscal and personnel issues.”
He mentioned that positioning factories near “major international participants” could help secure “adequate talent and workforce”.
The bag company Moral Team is among those reducing their expansion efforts in the U.S., with greater emphasis placed on growing markets in Taiwan, Singapore, and Japan, as well as considering opportunities in Europe.
“Approximately 10 percent of our operations are based in the United States, and we believe that tariffs will certainly affect us,” stated Charlotte Chui Hiu-yan, who serves as the marketing manager for this Hong Kong-based firm.
Sunarsih Krisfilia, who hails from Hong Kong and serves as the director of the Indonesia Chamber of Commerce in the city, mentioned that her joint venture, Essence Guangzhou, might relocate their manufacturing operations to Southeast Asia to take advantage of reduced tariffs.
She mentioned that the partnership generated $76 million worth of cosmetics, skin care items, and shower products on the Chinese mainland for sale in the United States.
“Conflict does not bode well for commerce and entrepreneurs. I believe neither Indonesia nor other nations would gain anything from this trade war… as everyone involved faces losses,” she stated.
Currently, everything feels very realistic. We have already raised our export costs to the U.S., so I doubt I can gain any advantage from this situation. My options are either to find a way out or simply manage to stay afloat.
Additional reporting by Oscar Liu
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