Nearshoring: Optimism vs. reality of the Mexican economy

Summary

Mexico would face challenges on several fronts in the face of a massive arrival of production from Asia through Nearshoring. The most relevant challenge would be faced by the National Energy System, which would experience a growing and accelerated demand for energy by electricity-intensive industries.

Key points

• Key points:
• Given its geographical location, trade integration with North America, and being part of a modernized agreement such as the USMCA, Mexico is a natural candidate for this relocation of production processes.
• Mexico is far from leading this race. Most of the production that has left China since 2018 has remained in adjacent countries of the Asian giant such as Vietnam, Taiwan or Singapore.
• We analyze the economic growth under the hypothesis that Mexico received all the trade flows that have left China since 2018.
• Under this scenario, the Mexican economy would have grown 1.42% annually, and not -0.40%. Manufacturing would have grown around 7% annually, instead of 0.69%.
• However, in terms of infrastructure, it is unclear if Mexico is ready for a massive capital inflow. A clear example is access to electricity.

Geographies

Topics

Tags