Nearshoring presents a tremendous opportunity for Mexico, as it attracts investments and companies through relocation trends like nearshoring, reshoring, friendshoring, and allyshoring. However, it’s crucial to recognize that this favorable window won’t remain open indefinitely, and addressing key issues is essential to sustain this advantageous position.
The US-China trade war and disruptions caused by the coronavirus pandemic have led to the regionalization of supply chains, benefiting Mexico. Additionally, recent government actions, such as those against inflation and in favor of chip production by President Joe Biden’s administration, have further enhanced Mexico’s appeal for companies and investments.
Juan Carlos Baker, General Director of Ansley Consultores Internacionales, warned that this window of opportunity is closing due to budget constraints on approved funds in the United States. The Inter-American Development Bank estimates that Mexico could be the most significant beneficiary of this relocation trend, potentially receiving around 35 billion dollars.
While an exact expiration date cannot be specified, it’s estimated that this opportunity might diminish within the next five to seven years. As Mexico experiences increasing interest from companies, especially in the north and Bajío regions, efforts are also being made in the south-southeast, focusing on the Trans-Isthmic Corridor and the development of 10 industrial parks to attract further investments.
To fully capitalize on this relocation trend and streamline supply and production chains, Mexico needs to invest in higher education to nurture a skilled workforce for various industries. Infrastructure investments, particularly in electrical transmission, highways, customs, railways, ports, and airports, are also vital requirements for sustained growth.
Apart from Mexico’s participation in the Treaty between Mexico, the United States, and Canada, its appeal is enhanced by having 14 trade agreements with 46 countries, positioning it as a gateway not only to the United States but also to Europe and South America. Nearshoring connects Mexico more closely to the global market, and this trend is anticipated to persist.
Given the uncertainties associated with China, many companies are considering relocating their suppliers to Mexico. However, it’s essential to recognize that nearshoring decisions are now driven by risk considerations, alongside factors like costs, connectivity, infrastructure, and talent availability. As the relocation process takes time, companies must carefully evaluate their strategies.
In conclusion, Mexico must seize the nearshoring opportunity by addressing key areas of investment and infrastructure development. This will not only solidify its position as a relocation hub but also provide a springboard for economic growth and enhanced global economic engagement.
Samuel Vázquez, Chief Economist at BBVA Mexico, highlighted the concerns of foreign companies regarding Mexico, which include the availability of inputs, the electricity market, estimates of demand from the United States, infrastructure plans, and related matters.
Regarding China’s presence in the US market, Vázquez pointed out that China continues to be the primary supplier to the United States but has lost some ground. Mexico has not fully capitalized on this shift, as it only gained less than 1% of the market share that China lost. Vietnam was the most significant beneficiary, experiencing an increase from 2% to 4%. It is estimated that if Mexico had captured 15% of China’s lost trade in the US, its growth would have surpassed one percentage point.
China possesses a significant advantage as the only country with control over the entire supply chain, including basic inputs, intermediate goods, and final products. Additionally, China has been strategically securing mining concessions globally, ensuring the production of essential minerals and reducing its reliance on global supply chains.
Although companies will continue to serve China and other countries in the region, Mexico is positioned as one of the candidates to supply the US and European markets. However, it is not the sole contender for this role.
Trade in services is anticipated to become more predominant than merchandise in the reconfiguration of global supply chains. This shift might present challenges in becoming more localized.
The Mexico-China relationship played a crucial role during the pandemic, and China was a significant partner not only for Mexico but for Latin America and other parts of the world. While Mexico is part of North America and focuses on strengthening the region through T-MEC, it cannot overlook its commercial ties with China. Despite the desire for a balanced relationship with both the United States and China, Mexico will ultimately prioritize its relationship with its northern neighbor when necessary. However, the absence of a defined China policy has been lamented, as it is essential to acknowledge China’s significance as Mexico’s second-largest trading partner.
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