![DALI CONTAINER SHIP iStock-viper-zero-1337032942.jpg A LADEN CONTAINER VESSEL PLIES THE SEAS.](https://www.supplychainbrain.com/ext/resources/2024/03/26/DALI-CONTAINER-SHIP-iStock-viper-zero-1337032942.jpg?height=100&t=1711474202&width=150)
Analyst Insight: Supply chains are undergoing a dramatic and generational economic reshuffling. Mexico — already the United States' top trading partner — is emerging as a pivotal player in the near-shoring phenomenon, drawing attention from global investors and companies seeking to relocate from China. Though a lot has been said about the geopolitical, cultural and socio-economic advantages of bringing supply chains closer to home, there is more to Mexico's privileged position: its macro-economy.
As outlined by Gordon Lee, head of research at BTG Pactual Mexico, 65% of the world's GDP trades duty-free with Mexico. This, together with its geographic location (an almost 2,000-mile land border with the U.S) and its enterprising culture, have led to a boom in trade over the past decades. In fact, if you take all manufacturing exports in Latin America, including those of Brazil, and multiply them by three, they still wouldn't match Mexico's. So, it’s no surprise that Mexico has emerged as a focal point for near-shoring, presenting an economic transformation that is reshaping industries and challenging the order of global trade.
Foreign Direct Investment (FDI) Surge.
Deloitte projects a 10% annual growth in already record-high FDI into Mexico, reaching over $60 billion annually by 2027. Moreover, this investment is not just from the usual suspects with an already established presence. McKinsey & Company reports that 36% of near-shoring investments are coming from companies with no prior record in the region. This influx is a vote of confidence in Mexico's long-term macroeconomic stability, and especially in its growth potential. With near-shoring creating a buzz for some time now, the momentum has been picking up rapidly since the start of 2023. Within the first six months alone, there were more announced investments than in all of 2022.
Job Creation and Company Influx.
The anticipated creation of approximately 1.1 million jobs in Mexico, coupled with expectations of 450+ new companies setting up operations between 2024 and 2025, underscores the country's rising prominence. Tesla, Foxconn, Constellation Brands, and BMW are just a few of the notable near-shoring-related investments already in motion. Beneficial tax breaks and incentives like accelerated depreciation of investments in new assets, further showcase Mexico's strategic positioning as a prime destination to establish a robust presence in the North American market.
Integrated Economies and Trade Dynamics.
The tightly integrated nature of North American economies, highlighted by Peter Goodman, emphasizes the symbiotic relationship between the U.S. and Mexico. When goods are exported from Mexico, nearly 40% of their value is produced in the U.S. This stands in stark contrast to China, where only about 4% of the value of goods is created in the U.S. The significance of Laredo as a primary crossing point, handling over half of rail containers and witnessing a steady growth in truck share, further reinforces the robust trade dynamics between the two nations. In fact, for the first time, Port Laredo closed the first quarter of 2023 as the nation’s leading gateway for U.S. trade, a position traditionally disputed between the Port of Los Angeles and Chicago’s O’Hare International.
Outlook: Looking forward, as we navigate the nearshoring landscape, it's evident that Mexico has the potential to play a transformative role in global trade. To fully harness that opportunity, some important challenges need to be urgently addressed, especially around road and bridge infrastructure, abundant renewable energy, and technological investments. The near-shoring trend from China to Mexico is not just a momentary phenomenon, it's a reality that can reshape global trade dynamics for generations to come.
Resource Link:
RELATED CONTENT
RELATED VIDEOS
Timely, incisive articles delivered directly to your inbox.