Investor Essentials Daily

America has a new primary trading partner

March 11, 2024

U.S. corporations have long outsourced labor and manufacturing to China due to lower costs, granting China significant economic leverage and supply chain control. 

This relationship led to a massive U.S. trade deficit, peaking at $418 billion in 2018, and contributed to supply chain disruptions during the pandemic. 

The “trade war” and pandemic accelerated a shift in U.S. dependency from China to closer trading partners, with Mexico becoming the largest source of U.S. imports for the first time in two decades. 

This shift is driven by lower labor costs in Mexico and reduced transportation expenses compared to China. 

Significant investments are flowing into Mexico, including a $15 billion natural gas pipeline and a $10 billion Tesla gigafactory, with U.S. businesses projected to invest up to $40 billion in 2024. 

Despite the surge in construction and nearshoring to Mexico, Cemex (CX), a major cement and concrete supplier, is undervalued by investors, with its price-to-book ratio near a 15-year low despite strong growth prospects in U.S. and Mexican markets. 

This presents a potential opportunity for investors to capitalize on before valuations increase.

Investor Essentials Daily:
The Monday Macro Report
Powered by Valens Research

China has been the economic elephant in the room for decades…

U.S. corporations have eagerly outsourced extensive labor and manufacturing to China, attracted by lower costs, while politicians have expressed increasing concerns. The savings for companies translated into significant leverage for China.

China’s economy was accelerating at a pace that threatened to surpass the U.S., at least until the pandemic hit.

Moreover, China’s control over numerous supply chains—positioned a world away—played a significant role in the devastating supply chain disruptions witnessed during the pandemic.

This vulnerability wasn’t a newfound revelation; indeed, it was a cornerstone of President Donald Trump’s 2016 election campaign.

China was amassing a formidable trade surplus with the U.S., absorbing American dollars with no immediate remedy in sight.

The ensuing “trade war” saw the U.S. deficit with China hitting a peak of $418 billion in 2018, indicating a massive imbalance in trade.

To counteract this, President Trump initiated significant tariffs on Chinese imports. However, the pandemic inadvertently accelerated a shift, reducing U.S. dependence on China in favor of closer trading partners.

Last year marked the first in two decades that a nation other than China became the primary source of U.S. imports, a milestone.

Businesses in the U.S. are now eyeing opportunities closer to home.

Last year Mexico became America’s largest importer for the first time in two decades.

China almost fell below Canada, but just barely kept its 2nd place position.

As U.S. companies look to rebuild supply chains to make them more resilient, they are finding a lot of reasons why Mexico makes sense.

Labor there is cheaper than it is now in the coastal areas of China, and when you take into account the cost of transportation, it beats the cost from the Chinese hinterlands as well.

It is reasons like these that helped push rail operator Canadian Pacific (CP) to buy Kansas City Southern in 2021 and to continue to invest in its operations below the borders.

Since then, a lot of money has poured into Mexico. Mexico Pacific is building a $15 billion natural gas pipeline that will export 2.8 billion cubic feet per day. Tesla (TSLA) plans on building a $10 billion Tesla gigafactory in Nuevo León.

It is projected that United States businesses will invest up to $40 billion in Mexico in 2024 alone.

This setup is perfect for companies like Cemex (CX)…

Cemex is a construction material company that primarily distributes cement and ready-mix concrete to Mexico and the U.S.

With so much construction going on in both countries, especially near the border, it is perfectly positioned to benefit from U.S. nearshoring efforts.

However, investors seem to be pricing in a different story.

When looking at the company through valuation metrics such as uniform price-to-book (P/B) ratio, Cemex is currently trading near its 15-year low.

The P/B ratio compares a company’s total value with the value of the assets on its balance sheet (or “book”). The higher the P/B ratio, the more investors are willing to pay for the company’s assets.

Currently, Cemex’s P/B ratio is below 1 times, meaning that its assets are not only priced low but that investors are pricing the company to be worth less than its assets.

Even though Mexico’s infrastructure is surging, investors don’t seem to be paying attention.

While Cemex’s U.S. revenue grew 6% in 2023, its revenue in Mexico grew by 32%.

This is very likely only the beginning of a multi-year growth period for Mexico’s trade with the U.S.

This positions Cemex on a trajectory of strong, sustained growth, fueled by the growing trend of nearshoring among U.S. companies. The company’s future looks promising as it capitalizes on these developments.

For savvy investors, this could be a chance to jump in before valuations rise back to 1 times or higher.

Best regards,

Joel Litman & Rob Spivey

Chief Investment Strategist &
Director of Research
at Valens Research

View All

You don’t have access to the Valens Research Premium Application.

To get access to our best content including the highly regarded Conviction Long List and Market Phase Cycle macro newsletter, please contact our Client Relations Team at 630-841-0683 or email

Please fill out the fields below so that our client relations team can contact you

Or contact our Client Relationship Team at 630-841-0683