The growth of Mexico during the nearshoring era has been facilitated by high foreign direct investment (FDI) inflows, particularly in the manufacturing and transportation equipment sectors.
In the past half-decade, the world has witnessed a paradigm shift in the nature of global supply chains. This has been occasioned by a number of factors, including the tensions between Washington and Beijing, the outbreak of the pandemic, and the need for global corporations to build greater resilience. At the forefront of this paradigm shift is Mexico, a country that is uniquely positioned to take advantage of the nearshoring trend due to its proximity to the United States, the improvement of its trade agreement with the United States through the USMCA, and the increasing flow of foreign direct investment that is transforming its industrial base. The question that seems to be on the lips of global investors is whether the most industrialised economy in Latin America is the major beneficiary of the US-China supply chain shift and how it compares with emerging alternatives such as Vietnam and India.
The growth of Mexico during the nearshoring era has been facilitated by high foreign direct investment (FDI) inflows, particularly in the manufacturing and transportation equipment sectors. During 2024, Mexico registered a cumulative FDI of approximately US$36.9 billion, which shows a slight increase from the previous years, but also shows that there is a great interest from MNCs in the Mexican manufacturing sector. It is worth mentioning that more than half of this investment was channelled into the manufacturing sector, which led to the growth of the transportation equipment, electronics, and automobile industries in the major manufacturing states of Nuevo Leon, Chihuahua, and Guanajuato. The transportation equipment industry registered a disproportionately large share of the manufacturing FDI, which was about 41% of the total FDI, and registered a substantial increase from the 2022 statistics, which shows that nearshoring is not only driving assembly manufacturing but also aligning itself with more complex supply chains.
The car industry best represents the nearshoring potential of Mexico. For decades, Mexico has been an integral part of the North American automotive value chain. The country has attracted continuous foreign direct investment from worldwide original equipment manufacturers and tier-one suppliers. The automotive FDI figures were close to or in excess of US$6.9 billion in 2024, and Mexico is one of the world leaders in car exports. The USMCA regional content provisions have been crucial in this respect; by increasing the minimum requirement for the use of North American-sourced components and higher wage thresholds for cars to be eligible for preferential treatment, the USMCA has further consolidated Mexico’s role in the regional automobile value chain. This has triggered further investment commitments from Stellantis, Ford, and other worldwide brands to realign their production footprint with tariff-friendly logistics and regional demand.
Outside the automotive sector, electronics and semiconductor supply chains are also being identified as a new area where nearshoring benefits can be realised. The Mexican electronics assembly clusters, particularly in Baja California and Chihuahua, have attracted FDI to the tune of billions of dollars in the past few years, with chip assembly, testing, and packaging (ATP) identified as key sectors. The Mexican government and private sector are now set to realise their plans to increase semiconductor manufacturing capacity by the end of this decade, despite the global competition that is being witnessed in this sector.
Trade flows illustrate the evolution of Mexico from a peripheral producer to an important player in North American supply chains. The USMCA, which replaced the North American Free Trade Agreement (NAFTA), has enabled a new wave of trade growth to continue between Mexico and its northern trading partner. Trade in goods between the United States and Mexico has continued to rise significantly, with manufactured goods making up the majority of trade and representing the complex nature of transnational supply chain relationships that penetrate deeply into automotive parts, electronics, and machinery. Mexican exports to the US are tariff-free under the USMCA, providing a huge advantage to Mexican manufacturers over their competitors in Asia, who are constrained by higher tariff barriers and more complex supply chain logistics.
This proximity offers cost and time advantages that should not be underestimated. The lead times and freight costs associated with trucking the freight from the Mexican industrial centres to the United States are dramatically shorter and less than those associated with Asia, making it easier for companies to implement a just-in-time manufacturing strategy that is more flexible and responsive to changing market conditions. The proximity of the border also facilitates direct managerial control and cultural fit, making Mexico an attractive location in a world where the resilience of supply chains is as valuable as cost.
The trend in industrial real estate is a reflection of this nearshoring growth. The vacancy levels in the major industrial estates have fallen dramatically, with the demand for logistics and manufacturing facilities in areas such as central Mexico and the border states outpacing supply. While this development of industrial infrastructure is increasing capacity, it has also highlighted weaknesses in the utilities and transportation infrastructure, and it appears that the nearshoring growth in Mexico will depend on public sector investment.
However, the nearshoring experience in Mexico has not been without its challenges. The uncertainty of trade policies, particularly with regard to the expected changes in tariffs, has led to uncertainty in long-term investment decisions. Proposals regarding the changes in tariff structures or the renegotiation of the USMCA agreement based on allegations of trade circumvention by third-country investors have led to tension among trade experts. Chinese companies have also been identified as major players in the supply chain of the Mexican automotive industry, leading to concerns regarding competitiveness and policies regarding the protection of the integrity of North American production.
However, when considering the new supply chain locations, the advantages of Mexico in the nearshoring case are distinct. Vietnam has attracted a large amount of FDI in the total “China + 1” strategy, and the investment in manufacturing in the fields of electronics, textiles, and consumer products has been rising every year. The lower labour costs and geographical proximity to the existing value chains of Asia have made it an attractive alternative location for firms seeking to diversify beyond China.
