Beyond the US-China Trade Corridor

The scene in a Mexico City office was telling. Meeting with Chinese corporates including electric vehicle (EV) manufacturers, global bank executives noticed an interesting shift in ambition. These companies, once focused solely on exporting to the US, were now viewing Mexico as a springboard for the entire Americas region. 

“What was really interesting, which I didn’t appreciate until I was in Mexico, was that many Chinese corporates have invested in coverage out of Mexico for the Caribbean, Central America and South America,” says Atul Jain, global co-head of trade finance and lending at Deutsche Bank. “As much as we talk about this as a China-Mexico into the US corridor, actually the weight of business for many of these corporates is China-Mexico into everything southward.” 

This shift exemplifies the fundamental rewiring of global trade. The once-dominant US-China trade corridor, worth approximately $700 billion, has been fundamentally reshaped by tariffs that have increased three- to six-fold during the past seven years. While US imports from China have declined, this reduction has been almost perfectly offset by increased imports into Asean countries from China. 

The trade triangle 

The linear US-China trade flow has been replaced by a more complex geometry. China to Southeast Asia, Southeast Asia to the US. Chinese manufacturers are shifting final assembly toother markets to avail US tariffs. Chinese investment ASEAN countries surged by 45% in 2023 and intermediate imports from China to ASEAN are rising, indicating a sophisticated restructuring of supply chains rather than a simple relocation—what some economists identify as a spill-over effect. 

“China is strong with infrastructure, like high-speed railway and so forth” explains Samuel Tse, economist and strategist at DBS Bank Hong Kong. “Instead of leaving China, it’s more like the foreign companies or multinationals are keeping their investment in China, but exploring alternatives.” 

Chinese manufacturers are establishing operations in Mexico, and China-Mexico bilateral trade has more than doubled since2017. Mexico now accounts for 15.6% of US imports, exceeding China’s 13.5%—marking the first time in two decades that China has been displaced as the US’s leading source of imports. 

Yet China’s trade prowess has grown stronger. In 2024, its overall trade grew 5%, with the trade surplus surging 21% year-on-year to a record $992.1 billion. US president Donald Trump’s first-term tariff policies, rather than weakening China’s position, appear to have catalysed a pivot: of the world’s 10 fastest-growing trade corridors, five now include China as a terminus, while only two connect to the US. 

Chinese companies are developing distinct specializations in different regions—renewables in Europe, infrastructure in the Middle East, machinery and automobiles in Southeast Asia. Mexico stands unique in attracting investment across all sectors. “In Mexico, they’re doing everything,” notes Deutsche’s Jain. “They’re contributing machinery, autos and EVs, EPC infrastructure, and even helping build out metros there.” 

Beyond cost efficiency 

The US market remains critical: no global company can ignore the world’s largest purchasing power. Yet as US companies diversify their China sourcing, Chinese firms are equally expanding beyond their traditional US focus. 

With Trump’s return to the US presidency, tariffs are again becoming his weapon of choice for “making America great again”–this time targeting not just China but traditional allies too. 

The demand for diversification has moved beyond national policy to reshape corporate strategy at every level. 

“Almost every client globally in most key manufacturing markets has diversified their supply chain between 2020 and today,” says Kaleem Rizvi, Citi’s corporate bank head for Japan, Asia North and Australia. “Whether corporates have done this in a more material fashion or on the fringes, nobody is untouched by the need to do this.” 

Elvira Kruger, global head of transaction services at ING, notes a paradigm shift. “In the past, companies focused almost exclusively on cost efficiency when it came to supply chains,” she says. “What Covid and geopolitical developments are teaching our clients is that cost efficiency cannot be the only factor.” Diversification of supply chains has become “almost like an insurance policy for corporates”. 

The transformation runs deeper than geography. “Our clients are undergoing fundamental business model changes,” notes Ole Matthiessen, global head of cash management at Deutsche. “It’s seen from how they set up supply chain to how they manage financial and non-financial risk.” 

Traditional distribution networks are being bypassed. Car manufacturers, for instance, who once relied on resellers, now need direct customer relationships, requiring new payment solutions and financial services infrastructure. 

From products to solutions 

This complexity has transformed banking. One of Euromoney’s key findings from 2024 was that banks now serve as strategic advisers, engaging with clients from the earliest stages of expansion planning. 

For corporates venturing into new markets, the challenges multiply. “They need to understand how to make tax payments, bring in capital, hedge their capital, pay salaries to local employees,” explains Kanika Thakur, Citi’s TTS head for Japan, Asia North and Australia. In one market, for example, where currency devalued significantly and interest rates soared into high double digits, the immediate priority became capital preservation. 

Industry-specific challenges add another layer. Gig economy companies entering Mexico grapple with cybersecurity and cash management in a volatile economy, while e-commerce firms must navigate data privacy and delivery challenges. Banking advisory now spans from market selection to partner identification, including client introductions and treasury centre setup guidance. 

Citi’s Rizvi explains: “If you put yourself in the shoes of a client, their margins are compressed, it’s a tight economic environment. They want control yet they want local expertise. They want to expand their business in a manner that gives enough leeway to countries they’re operating in, but keep enough control centrally to ensure discipline over costs, maximise cash flows and optimise how they run the business.” 

This evolving client need has exposed structural challenges within banks themselves. Traditionally, working capital, documentary trade and project finance often sit in different parts of the corporate bank, “so already getting them to speak together is hard”, notes one banker. “Then getting them to speak to the investment bank that does a lot of the hedging and risk management is a complete pain in the ass because it’s two different divisions.” 

More and more banks are responding by breaking down these silos. “We engage our clients with the right coverage and subject-matter experts who understand their needs, bringing a holistic ‘One-Citi’ approach,” says Rizvi. 

Renminbi’s rising role 

As China’s role in global trade expands, the renminbi’s (RMB) international influence grows inparallel. This shift is evident across multiple regions. 

“China has been the biggest trading partner of many countries,” explains DBS’s Tse. “In Latin America, for example, China-Brazil trade volume now exceeds Brazil-US trade. The same pattern is emerging in the Middle East and ASEAN.” 

An historic shift occurred in early 2024 when China’s cross-border RMB payments surpassed US dollar transactions for the first time, according to the Chinese State Administration of Foreign Exchange. 

“As a trade finance practitioner, basically our functional currency ties back to the corresponding payment fee,” notes Jain. “We’ve seen significant increase in CNY-denominated payments.” Two key factors drive this growth: broader adoption in cross-border transactions and favourable interest-rate differentials. This trend is especially pronounced in emerging corridors linking China with Central Eastern Europe, the Middle East and Latin America. 

Banks are innovating in response. Deutsche, for instance, completed the first CNY-oriented financing for a Chinese state-owned power generation company’s Brazilian subsidiary, combining a term loan with cross-currency swaps. The success of this transaction has sparked interest from other Chinese corporates looking to replicate the structure. 

Uday Sareen, ING’s chief executive and head of Wholesale Banking APAC, links this to broader supply chain shifts: “As Chinese companies drive through international corridors, setting up factories in Mexico and aligning in Central/Eastern Europe, that drives demand for local currency hedges, local currency funding and FX hedging.” 

The trend appears self-reinforcing. As more Chinese companies expand internationally, demand for RMB-denominated trade finance grows, which in turn facilitates further expansion. This cycle suggests the RMB’s role in international trade finance will continue to expand, particularly in emerging trade corridors. 

As traditional trade corridors give way to more complex, multi-dimensional networks, the winners will be those who can combine local knowledge with global capabilities, technical expertise with strategic insight, and traditional banking services with innovative solutions. 

“In that VUCA world—volatile, uncertain, complex and ambiguous—where money is not free, clients need advice, they want solutions,” concludes Jain. 

The depth of client engagement has reached unprecedented levels. “We have probably never had as enriching and strategic discussions with our corporate clients as in the last 18 to 24 months, “reflects Deutsche’s Matthiessen. “And I project that being the same for the next two or three years to come.” 

Originally published in Euromoney: Opens in a new tabhttps://www.euromoney.com/article/2ecr48ktlhaqyqcku5pts/treasury/beyond-the-us-china-trade-corridor/