Manufacturing in Mexico: A Key Driver of North America’s Competitiveness

During the recent North American Leaders’ Summit held in Mexico City, President Joe Biden, Prime Minister Justin Trudeau, and President Andrés Manuel López Obrador emphasized the pivotal role of Mexico’s manufacturing sector in promoting economic interdependence and regional integration. This article examines the implications of Mexico’s manufacturing boom on North America’s international competitiveness, with a particular focus on the automotive industry, nearshoring strategies, and future growth prospects.

The adoption of the United States-Mexico-Canada Agreement (USMCA) in 2020, which built upon the foundation of the North American Free Trade Agreement, has strengthened the region’s trade bloc, representing a significant portion of global GDP. Leveraging its trained and affordable labor force, Mexico has witnessed a steady growth in its manufacturing sector, including a remarkable 30% increase in the first nine months of 2022 compared to the previous year. The automotive and auto parts industry has been at the forefront of this expansion, demonstrating its resilience and adaptability to regional supply chain dynamics and the emerging electric vehicle market.

Mexico’s attractiveness as a manufacturing hub stems from its abundant labor resources and cost-efficiency, making it an ideal choice for companies seeking to establish or relocate their operations to cater to the US market. Moreover, Mexico’s strategic geographic location enables reduced shipping times and costs, particularly when compared to distant manufacturing destinations such as China. The country boasts a well-developed network of air, land, and rail infrastructure, facilitating efficient transportation of goods.

The automotive industry holds immense significance within North American trade, as evidenced by the inclusion of provisions in the USMCA to ensure long-term stability for automakers. Free movement of auto parts among the three countries and the absence of new tariffs on vehicles imported from Mexico and Canada are crucial aspects of these provisions. The Summit provided an opportunity to further explore the importance of the automotive sector and maximize Mexico’s potential to benefit all three nations.

Recent modifications to the rules of origin for the auto industry under the USMCA, which now require 75% regional content, have contributed to substantial growth in Mexico’s automotive sector. Combined with global disruptions in supply chains and container shortages, these factors have propelled investments in new projects, expansions, and acquisitions, reaching a remarkable 185% increase from the previous year.

Furthermore, Mexico’s manufacturing ecosystem has undergone rapid expansion, exemplified by the rise of nearshoring and allyshoring practices. This evolution has led to a more complex landscape, featuring low-cost production, intricate value chains, and an increasing number of suppliers. International companies benefit from specialized skills and services while capitalizing on cost advantages.

Looking ahead, the leaders at the Summit emphasized the importance of strengthening economic cooperation, enhancing resilience, and fostering innovation within the North American trading bloc. Investment in Mexico’s manufacturing sector, particularly in the automotive industry, was highlighted as a key strategy to leverage the country’s low-cost manufacturing capabilities and proximity to its North American counterparts. Additionally, the leaders pledged to continue developing joint strategies to reduce regulatory barriers, improve infrastructure, and enhance intellectual property protections, all of which contribute to Mexico’s success as a prominent manufacturing center. Notably, a joint committee was established with the aim of planning and substituting imports in North America, fostering greater self-sufficiency in the region.

In summary, Mexico’s flourishing manufacturing industry plays a vital role in bolstering North America’s competitiveness on the global stage. As nearshoring gains momentum and the automotive sector capitalizes on emerging opportunities, Mexico’s manufacturing ecosystem continues to thrive, presenting significant advantages for international companies and stimulating shared economic growth and efficiency within the region.