With or without nearshoring, in Mexico we have to ke

With or without nearshoring, in Mexico we have to keep working

14 de Junio de 2024

The country faces a dilemma: while its proximity to the United States and its network of 14 trade agreements with 50 countries are formidable assets, they are not enough.

Sergio Argüelles.

For decades, Mexico enjoyed a "geolocation bonus." Its proximity to the United States—the world's largest economy—gave it a strategic advantage without requiring great effort. The signing of NAFTA in 1994 and its update in the USMCA secured preferential access to the US market, with reduced or zero tariffs on more than 80% of exported products.

While other countries faced tariff barriers of up to 20% to enter the United States, Mexico enjoyed free trade. But that advantage alone is no longer enough.

Today, the world is undergoing a trade reconfiguration driven by the nearshoring phenomenon and a growing trend toward deglobalization. Supply chains are moving from global to regional. The United States is striving to reduce its dependence on China—from which it imported more than $536 billion in goods in 2022, according to the U.S. Census Bureau—and Mexico is positioning itself as a strong strategic partner for relocating production.

Mexico's privileged position vis-à-vis the United States responds to a strategic necessity: the United States seeks to consolidate its trade alliance with reliable countries in the face of growing geopolitical competition with China. But trust between partners is also built and sustained, and that requires serious behavior: political stability, clear rules, and respect for agreements.

According to data from the Ministry of Economy, in 2023, Mexico received more than $36 billion in Foreign Direct Investment (FDI), the highest amount in a decade. According to BBVA Research, up to 60% of that investment was directly or indirectly linked to the nearshoring phenomenon. Furthermore, Mexico displaced China as the United States' main trading partner in 2023, with bilateral trade totaling $798 billion.

However, global competition to attract investment is increasingly fierce. Vietnam, for example, offers aggressive tax incentives, cheap labor, and free trade agreements with Europe and Asia. India is investing billions in logistics and digital infrastructure to capture production that previously went to China. Even Latin American countries like Colombia, Brazil, and Costa Rica have entered the race with force.

This is where Mexico faces a dilemma: while its proximity to the United States and its network of 14 trade agreements with 50 countries are formidable assets, they are not enough. In fact, many states in the country face serious constraints: lack of electricity, overcrowded infrastructure, insecurity, legal uncertainty, and technical education disconnected from market needs.

According to a study by McKinsey & Company, Mexico could increase its GDP by 8% over the next decade if it manages to capture the full potential of nearshoring , but to do so, it needs to invest in infrastructure, strengthen the rule of law, and develop specialized talent. Otherwise, this geographic advantage, which was once a competitive advantage, could become a wasted opportunity.

If Mexico doesn't accelerate its structural reforms, improve its logistical capabilities, and ensure conditions to attract and retain investment, it will lose ground to countries that are doing the job without even having its privileged location.

In short: proximity is no longer enough. Treaties don't last forever. And the world doesn't wait. Mexico must build its structural competitiveness, with or without nearshoring , if it wants to play a relevant role in the new global economic order.

Expansion. With or without nearshoring, we have to keep working in Mexico.