When Donald Trump started a trade war with China in 2018, Mexico looked well placed to benefit. For American manufacturers scrambling to dodge newly imposed tariffs on Chinese imports, the attraction of moving production to their southern neighbor seemed clear. Mexico offered a skilled workforce, good road and rail connections, an established export industry, and privileged trade access. The stage appeared to be set for a boom in “nearshoring” — relocating production closer to home.
A bonanza beckoned, perhaps rivaling the one Mexico enjoyed in 1994 after the signing of the North American Free Trade Agreement. It didn’t happen.
Between 2018 and 2021 the proportion of manufactured goods imported into the US from Mexico barely changed according to data compiled by Kearney, the consultancy.
Instead, the rewards of the China boycott were reaped by low-cost Asian competitors including Vietnam and Taiwan. Asian countries other than China increased their share of US manufactured goods imports from 12.6 percent to 17.4 percent over the period.
The rapid growth in total US goods imports from Mexico that might have been expected had nearshoring taken off was also missing. It rose by just 11.8 percent over three years to $384.6bn in 2021, according to the US Census Bureau — after allowing for inflation the total increase was just under 4 percent.
“Most of the gains have gone to ASEAN, India, and Korea,” said UBS in a recent report examining nearshoring in Mexico. “At least for now, the US import penetration data does not support the view that Mexico has been a net beneficiary of nearshoring.”
There have been some signs of increased activity. Mexico attracted $34.9bn in foreign direct investment in the year to the end of March, up from $26.1bn a year earlier — although that figure includes large one-off transactions outside the manufacturing sector. Industrial parks in the north of the country are full and some international companies have relocated there. But despite this, Mexico’s overall economic growth over the past three years has been among the weakest of Latin America’s larger economies.
“This should be the golden era for investment in Mexico,” says Mauricio Claver-Carone, president of the Inter-American Development Bank and a big supporter of nearshoring. Calculations by the IDB suggest Mexico has the potential to deliver almost half of the $78bn in additional annual exports from nearshoring that the bank estimates Latin America could generate in the medium term.
Claver-Carone says there is plenty of interest from executives in moving to Mexico: “Not a day goes by without a major company calling me up and saying, ‘Hey, we want to invest [in moving production], can you help us in Mexico?’” Yet the interest has not yet translated into measurable economic gains, says Ernesto Revilla, head of Latin America economics at Citi and a former Mexican finance ministry official. While nearshoring has become a buzzword in discussions about the future of the Mexican economy, he says, “nobody knows how to continue the conversation”.
Source: FT
