Introduction
The ongoing trade war between the United States and China has indirectly benefited Mexico, leading to a significant increase in exports to the U.S. Mexico has become one of the United States’ primary trading partners, with bilateral trade amounting to $930 billion in 2024. Mexican exports now constitute 37% of the country’s GDP.
The Extent of Economic Integration
When including remittances from Mexican workers in the U.S., American tourism, and foreign direct investment from the U.S., the U.S.-Mexico relationship accounts for 50% of Mexico’s GDP.
Relocation of Production Chains
The U.S. is encouraging the relocation of production chains from Asia, primarily China, to Mexico. This shift necessitates improvements in infrastructure, workforce training, security, the rule of law, and better coordination between government, businesses, and academia in Mexico.
Supporting Small and Medium Enterprises
To capitalize on this opportunity, Mexico must channel more development bank financing to micro, small, and medium-sized enterprises (SMEs) to enable them to adopt advanced technologies and become suppliers for industries such as aerospace, automotive, semiconductors, and medical high-tech components.
T-MEC Review and Negotiations
The upcoming 2026 T-MEC review presents both challenges and opportunities for Mexico. The U.S. aims to apply tariffs on various sectors, including semiconductors, trucks, turbines, and copper. Mexico must negotiate to remove non-tariff barriers and address the three blocks of tariffs: migration/fentanyl, automotive, and steel & aluminum.
Collaborative Efforts
Canadian and Mexican leaders have committed to coordinating their efforts during the T-MEC review process. Conversations are already underway to eliminate non-tariff observations desired by the U.S. government and discuss tariffs on various sectors.
Key Questions and Answers
- What is the current state of the U.S.-Mexico economic relationship? The U.S. and Mexico have a deeply integrated economy, with bilateral trade amounting to $930 billion in 2024. Mexican exports constitute 37% of the country’s GDP.
- Why is there a push for relocating production chains from Asia to Mexico? The U.S. seeks to reduce its dependence on Asia, particularly China, by encouraging the relocation of production chains to Mexico.
- What are the challenges facing Mexico in preparing for the T-MEC review? Mexico must improve infrastructure, workforce training, security, and coordination between government, businesses, and academia. Additionally, it needs to channel more financing to SMEs for technological advancements.
- What are the key issues in T-MEC negotiations? The U.S. aims to apply tariffs on sectors like semiconductors, trucks, turbines, and copper. Negotiations must address non-tariff barriers and three blocks of tariffs: migration/fentanyl, automotive, and steel & aluminum.
