Nearshoring in Mexico and the reorganization of world trade

Nearshoring in Mexico (relocation) has gained relevance; its geographic position and strategic advantages present opportunities to gain market share from the reorganization of world trade, mainly imports from the United States, highlighted The Mexico Fund.

The first signs of nearshoring are taking place; new investments have been announced, electricity demand has increased and the absorption of industrial real estate is materializing, supporting economic activity.

Mexico’s GDP grew 3.1 percent during 2022, driven by strong manufacturing activity and robust local consumption, especially during the second half of the year, when the growth rate was 4.0 percent.

In addition, the external sector supported growth with international trade and remittances reaching 12-month highs during April 2023 at US$1.2 billion and US$60.3 billion, respectively.

Nearshoring in Mexico

Regarding international trade, in July 2022 the United States and Canada requested a dispute settlement consultation under the Mexico-U.S.-Canada Treaty (USMCA), arguing that the Mexican government’s energy policies disadvantage private participants in favor of Mexican state-owned companies.

Although two consultations were held in 2022, the process is slow, as no further consultations have been held.

The consultations are designed to resolve the dispute and avoid the need for arbitration panels.

If a panel is reached and rules in favor of the United States and Canada, punitive tariffs could be imposed on Mexican exports.

There have been other trade frictions between the three countries, but they are still at an early stage with no clear prospects for their possible outcome.

On the other hand, Mexico’s central bank (Banxico) tightened its monetary policy, increasing its overnight interest rate by 75 basis points over two meetings since January 2023, to 11.25 percent.

However, at its last meeting, held in May 2023, it decided to leave its target rate unchanged.

Inflation has also declined, from an annual rate of 8.7 percent, the highest in 20 years, in September 2022, to an annual rate of 6.3 percent as of April 30, 2023.

As a result, Mexico has an attractive real interest rate.