Background on the Economist and His Relevance
Román David Zárate, an economist in the trade and international integration team of the World Bank’s development research group, has been closely monitoring Mexico’s economic landscape for decades. His expertise in international commerce and integration makes his insights highly valuable regarding the impact of recent trade policies.
Nearshoring Benefits in Norte and Bajío Regions
Over the past 20 to 25 years, Zárate has observed that certain regions in Mexico have experienced significant growth while others lag behind, largely due to the distribution of industries. He identified the Norte and Bajío regions as the primary beneficiaries of increased trade and foreign direct investment, particularly from companies relocating to be closer to their US supply chains.
- Key states in these regions include Guanajuato, Aguascalientes, Jalisco, Querétaro, and San Luis Potosí.
- These states are part of the Centro-Bajío and Occidente chain, which accounts for more than one-third of Mexico’s transportation equipment production, with the automotive sector being a standout.
Impact of Tariffs on Mexican Economy
Zárate presented his findings at a seminar organized by the Mexican Council on International Affairs (Comexi) and the Mexico-US Center for Policy and Global Strategy at the University of California, San Diego. He acknowledged that the 25% tariffs on steel and aluminum imposed by the United States have started to negatively affect Mexico’s Gross Domestic Product (GDP).
- He admitted that predictions suggest a 3% reduction in Mexico’s GDP over the next two to three years due to these tariffs, which is substantial.
- Although the Norte and Bajío regions have been thriving, Zárate warned that these tariffs would initially impact the Mexican economy for two to three years, with varying effects across different regions.
Regional Economic Performance and Uncertainty
During the presentation of Banco de México’s Regional Economies Report, Alejandrina Salcedo, the bank’s Director of Economic Research, emphasized that they would continue monitoring regional performance and unique characteristics.
- Salcedo noted that uncertainty surrounding tariffs has already hampered business activities, decision-making, and investments in the northern regions.
- However, they are still evaluating the various channels through which these tariffs will impact the economy.
Banco de México conducts periodic assessments of regional economic conditions as a proactive strategy to respond swiftly to events in the country and optimize strategic policies for achieving its objectives.
Continued Integration Despite Uncertainty
Despite the trade policy uncertainty from Mexico’s primary trading partner, Zárate remains optimistic about the continued integration of regional production chains.
“For years, Mexico and the United States have maintained a close integration. Although there is current uncertainty about our main trading partner’s policies, it is expected that regional production chain integration will persist.”
Banco de México has been tracking company relocations through surveys of regional business leaders since June 2023. Their findings indicate that the centro norte and centro sur regions have experienced positive effects from relocation efforts.
Key Questions and Answers
- What are the key regions benefiting from nearshoring in Mexico? The Norte and Bajío regions, including Guanajuato, Aguascalientes, Jalisco, Querétaro, and San Luis Potosí, have seen significant growth due to increased trade and foreign direct investment.
- How have tariffs affected the Mexican economy? Tariffs on steel and aluminum imposed by the United States are predicted to reduce Mexico’s GDP by 3% over two to three years, impacting various regions differently.
- What is the outlook for regional economic integration in Mexico? Despite trade policy uncertainty, experts like Román David Zárate expect regional production chain integration to persist between Mexico and the United States.
