Introduction to Nearshoring in Mexico
In 2023 and 2024, the term “nearshoring” dominated discussions in Mexico’s investment environment and international trade. It was nearly impossible to avoid this term when discussing foreign direct investment (FDI) or international commerce, even being hailed as Mexico’s greatest economic opportunity.
Policy Shift and the Rise of Tariffs
However, starting in 2025, the focus shifted from nearshoring to tariffs. The term “tariff” evokes thoughts of the devastation it can cause, despite its beauty.
The nearshoring opportunity seems to have waned due to the emergence of tariffs. The motivation behind nearshoring investments in Mexico is its advantage for exporting to the United States. With tariffs, this incentive diminishes as Mexican exports to the U.S. are expected to decrease.
BBVA Research México’s Estimates
According to BBVA Research México, Mexican exports to the U.S. will face an average tariff of 18.2% in 2024, weighted by the proportion transported via T-MEC and non-T-MEC routes, as well as the tariff rate for each tariff category.
While this measure improves trade terms for the U.S. relative to Mexico, it’s essential to consider Mexico’s relative position among the top five exporters to the U.S.: Germany (20%), Japan (24%), Canada (25%), and China (145%). Mexican imports to the U.S. would, on average, face lower tariffs.
Resurgence of FDI Opportunities in Mexico
This tariff scenario creates an incentive for many companies to relocate production to Mexico from these countries, simply to pay lower tariffs. Consequently, the opportunity for FDI in Mexico resurfaces.
Moreover, the incentive for FDI in Mexico also arises for U.S. companies exporting to these nations due to the trade retaliation taken by these economies. Companies exporting from the U.S. to these countries would benefit more if they operated from Mexico.
Case Study: U.S. Exports to China
For instance, U.S. exports to China face an average tariff of 89.5%, according to our calculations. If U.S. companies producing in Mexico sell to China, their sales to this country would encounter fewer restrictions.
Competitiveness in International Trade
The competition in international trade is regional, not national. Therefore, North America’s competitiveness depends on a common policy that fosters FDI and productivity across the region.
Viewing North America as a single global player, trade barriers between member countries of the T-MEC must disappear to achieve this goal. As Don Rigoberto would tell Doña Lucrecia in Mario Vargas Llosa’s ‘Los cuadernos de don Rigoberto’: “Despite everything, we form a happy family.”
Key Questions and Answers
- What is nearshoring? Nearshoring refers to the practice of relocating business processes to countries closer to home, such as Mexico, for cost and efficiency advantages.
- Why did nearshoring in Mexico seem to wane? The opportunity for nearshoring investments in Mexico diminished due to the rise of tariffs imposed on Mexican exports to the U.S.
- How do tariffs impact FDI in Mexico? Tariffs create an incentive for companies to relocate production to Mexico from other countries, thus resurfacing FDI opportunities.
- What is the significance of the T-MEC agreement? The T-MEC agreement aims to foster a unified, competitive North American market by eliminating trade barriers between its member countries.
