*3.2. Participation of Mexico, the United States, and China in GVC of Textiles and Apparel: Sectoral Perspective*

3.2.1. GVC Participation in the Textile and Apparel Industry

The analysis of the GVC participation at a sectoral level, focusing on the textile and apparel industry (Figure 2), provides a different picture from the general perspective (Figure 1). Firstly, the level of participation is higher when textile GVC is considered. Secondly, the trends at the sectoral level change for Mexico and China, with decreasing and increasing levels of participation, respectively, from 2008 to 2018. Thirdly, the sectoral approach shows a clearer pattern of participation by country, with a deeper forward GVC participation for China, the United States, and Mexico confirming the predominance of backward insertion.

**Figure 2.** GVC participation index (%). Sectoral participation (textiles and apparel) 1995–2018. Source: Authors based on TiVA (OECD 2021).

One of the reasons for the dispute over the North American market between Mexico and China is due to the competition generated by U.S. manufacturing exports. There are two reasons for this rivalry. On the one hand, Mexico is strategically close to the U.S., geographically. On the other hand, China has the advantage of scale, being the world's largest exporter of manufactured goods, especially consumer goods such as textiles and electronics (Gereffi and Luo 2015).

In 2008, China's share of world textile exports was already 26.1%, while the United States and Mexico accounted for only 5% and 0.8%, respectively (Gracia-Hernández 2011). With a national strategy of considering the Fiber–Textile–Clothing Chain (CFTV) as one of the 12 priority branches of the textile industry, Mexico increased its export levels in cotton textile fibers from 7.2% in 2001 to 21.8% in 2010, showing its competitive potential (Vázquez et al. 2015).

Moreover, Mexico's privileged position of sharing more than 3000 km of border with the United States and the existence of free trade agreements account for its progressive trade liberalization, which results in the existence of cheap labor, more than that of all countries, except Asia (Montón 2015).

These aspects provide, in a way, a guarantee for Mexico to position itself in the U.S. market as a continuous development of its insertion in the more sophisticated GVCs. However, its direct participation in the fiber (yarn) and apparel (garment) links has unleashed a continuous cause of tension between China and Mexico (Chen and Goodman 2018). In this sense, some authors (Chen and Goodman 2018) propose that China and Mexico should develop a strategic partnership focused on cooperation by actively seeking business opportunities between them and being more understanding rather than showing their competitiveness with each other.

Therefore, it is interesting to analyze the textile sector's participation in the GVC through the study of value-added trade. The purpose of this analysis is to verify the main research question underlying this paper: is China consolidating its leadership as the leading supplier of value added to the global textile and apparel value chain developing an increasingly important role as a value creator in this global industry? To address this question, changes affecting the origin of value added embodied in textile exports from Mexico, the United States, and China are analyzed below.

3.2.2. Origin of the Value Added of Mexico's Textile and Apparel Exports

Although the origin of the value added embodied in Mexico's textile exports is mostly domestic, it is worth noting that 33% of the total value added exported in 2018 came from abroad, with the United States (14.4%) and China (6.6%) standing out in this share of value added (Figure 3).

**Figure 3.** Origin of value added in Mexico's textile and apparel gross exports (%). 1995–2018. Source: Authors based on TiVA (OECD 2021).

In any case, what is most striking are the contrasting trends observed in the participation of the United States and China during the 1995–2018 period. In this regard, the U.S. share decreased by more than eight percentage points, while China's share increased by more than 6 percentage points during the same period, more than doubling its initial share. This increase in added value could imply a faster upgrading of activities performed in GVCs and the deepening of intra-product specialization brought about by the recovery of cross-country, production-sharing activities (Li et al. 2019).

Likewise, this increase could also be due to the increased identification of GVC conditions ranging from sourcing cheap labor inputs and basic assembly activities with cheap and unskilled labor, to more advanced forms of value production, such as the full package strategy (Fernández and Gereffi 2019).

The importance of the U.S., in terms of value-added incorporated in Mexican textile exports, stems from the territorial proximity and the productive historical interconnection forged between the two economies over time. A significant proportion of the manufactured products exported by Mexico are made up of dynamic products for world trade, such as textiles and clothing (Fuji et al. 2005).

The implication of the Mexican textile industry in GVCs has been attributed to high transportation costs that fragmented the domestic market and generated a geographically dispersed industry (Gómez-Galvarriato 1999). Likewise, the growth of garment production in China affected world markets by offering the possibility of a greater quantity of textile products being produced through a fragmented process (Robertson et al. 2020).

However, the textile industry in Mexico has obeyed the geographical proximity of the United States, which translates into lower transportation costs, as well as the ease of supplying foreign plants with machinery, components, and materials in general, in addition to the fact that specialized labor represents greater agility when required in Mexico (Hansen 2020).

Therefore, some of the factors that potentially explain the increase in China's share as a source of value-added embodied in Mexican textile exports are: (1) China's lower labor costs compared to Mexico; (2) China's exploitation of economies of scale through investments in infrastructure and transportation logistics that accelerate the commercialization of its exported products (Gereffi and Luo 2015); (3) China's coherent and multidimensional scaling strategy for diversifying its industrial composition which adds high value-added activities (Frederick and Gereffi 2011); and (4) the use of FDI to promote continuous learning in industries as well as leveraging domestic market knowledge.
