Nearshoring Opportunities in Mexico Appeal to U.S., Chinese and Other Asian Companies
Highlights Nearshoring is now clearly on the agenda of North American leaders, due in part because of supply chain disruptions derived from COVID-19, the United States’ trade tensions with China and Russia’s invasion of Ukraine. Whether for those reasons alone or in combination with other trends, investments mostly from the U.S. and Asian countries are pouring into Latin America. Mexico, in particular, has attracted the attention of different companies around the world because of certain conditions inherent to it, mainly its proximity to the United States; the benefits of free trade agreements signed by Mexico, particularly the modernized United States-Mexico-Canada Agreement (USMCA); and low labor costs, among others. As the leaders continue to discuss regional economic integration, proposals are developing in the U.S. Congress to strengthen ties with trading partners in the Americas amid growing tensions with China. Nearshoring is now clearly on the agenda of North American leaders, due in part because of supply chain disruptions derived from COVID-19, the United States’ trade tensions with China 1 and Russia’s invasion of Ukraine. Whether for those reasons alone together or combined with other trends, investments mostly from the U.S. and Asian countries are pouring into Latin America. 2 Nearshoring is not for everybody. Transferring a business operation to a nearby country is not necessarily an easy task, but it is indeed an opportunity that should not be overlooked. Mexico, in particular, has attracted the attention of different companies around the world because of certain conditions inherent to it, mainly its proximity to the United States (the Mexico-U.S. border at approximately 3,150 kilometers – nearly 2,000 miles – is one of the top 10 longest in the world, as well as one of the busiest and most active economically 3 ); the benefits of free trade agreements signed by Mexico, 4 particularly the modernized United States-Mexico-Canada Agreement (USMCA); and low labor costs, 5 among others. The New York Times recently made the argument that Mexico is the next globalization stop after China, pointing to the trend that U.S.-based companies that used to obtain goods from suppliers located in Asia, mostly China, have started to look elsewhere for new locations and suppliers given the fact that obtaining such goods from regular suppliers has become increasingly more expensive and time-consuming. Several inquiries have been raised on whether Mexico will replace China as the preferred destination for investments of countries such as the U.S. There are reasons to believe that this may happen, such as the tariffs imposed to Chinese products in the U.S. or the increment in salaries of Chinese workers. However, there are companies that may choose to stay in China since they are comfortable with doing business there, particularly those that fit in with the local Chinese high-tech capabilities and supply chain infrastructure. 6 During the North American Leaders’ Summit held in Mexico City on Jan. 9-10, 2023, leaders of the region stressed the importance to strengthen bonds for obtaining goods from providers located in the North American region rather than from different regions as is occurring today. In order to achieve this goal, the leaders agreed to create a joint committee comprised of four representatives from each country that will focus on promoting the integration of the region’s economies and, in the words of Mexico’s President Andrés Manuel López Obrador, “substitute the importations to North America in order to achieve self-sufficiency of the area.” 7 Developments in the U.S. Congress As the leaders continue to discuss regional economic integration, there are proposals developing in the U.S. Congress to strengthen ties with trading partners in the Americas amid growing tensions with China. Sen. Bill Cassidy (R-La.) and Rep. Maria Elvira Salazar (R-Fla.) recently introduced a discussion draft of a bill that would establish a sweeping foreign and economic policy that points toward the Western Hemisphere. It contains provisions that would encourage companies to nearshore supply chains from China to the Western Hemisphere through tax incentives and trade preferences. It also includes instructions to the U.S. Trade Representative to negotiate expansion of the USMCA with select countries in the region; creation of an “Americas Partnership” with countries in the Western Hemisphere focused on hemispheric integration; and, creation of an “Americas Investment Corporation” within the U.S. government that would provide for private sector economic development in partner countries through support to large-scale infrastructure investment and nearshoring and reshoring opportunities. Although merely a discussion draft at this time, the 202-page bill demonstrates the significant amount of consideration being paid in Congress to nearshoring […]
