Effects of the competition between the two South locations (Mexico and China) in the North-

ern market (U.S.) is analyzed. By employing a new plant-level data set that covers the universe

of Mexican export assembly plants (maquiladoras) from 1990 to 2006 and exploiting the ex-

ogenous acceleration of Chinese imports in conjunction with the WTO accession of China, the

empirical analysis reveals substantial effect of intensified Chinese competition on maquiladoras.

In particular, competition from China has negative and significant impact on employment and

plant growth, both through the intensive and the extensive margin, on the most unskilled labor

intensive sectors of those threatened by competition from China, leading to sectoral reallocation.

No major effect is found through reallocative channels within industries, but significant increases

in plant productivity and skill intensity are quantified in maquiladoras attributable to competi-

tion from China. The results lend substance to field studies and anecdotal evidence on industrial

upgrading in Mexican Maquiladoras in response to competition with low-wage locations such as

China.