On paper, it is one of the world’s great opportunities. Wary of China, the US is hunting for reliable alternatives nearer home to locate low-cost factories. Across the border lies Mexico, a land of low-cost labour and abundant possibility, with preferential trade access and tax breaks under the Biden administration’s green energy programme. Is this a match made in heaven?
Recent headlines might encourage that impression. In July, Mexico passed China as the biggest source of imports into the US. Foreign direct investment into Mexico hit a record $32.9bn in the first nine months of this year. Industrial parks near the American border are filling up. Tesla has announced plans for a $5bn “gigafactory” in Mexico.
Moving US manufacturing to Mexico is nothing new. The process began with the North American Free Trade Agreement in 1994, which spurred a wave of investment into assembling cars, trucks and televisions. Mexico’s exports to the US were above those of China in the 1990s, but lost the crown as Chinese imports rocketed. This year’s change owes more to sharply declining Chinese imports than to booming Mexican exports.