???????????? Mexico’s onshoring boom

American President Joe Biden introduced $18 billion worth of Chinese tariffs, including a 100% hike on electric vehicles.

Tariffs are complex, and a lot goes into them, but I want to focus on the tariffs’ impacts on Mexico, which benefits from free market trade with the US (no tariffs).

This means Mexico’s status as an onshoring haven for China is set to boom over the next decade.

One key driver behind this shift is Mexico’s significant reduction in production costs compared to the United States and China.

With a competitive labor market and a strategic geographical location, Mexico is set to become an even more attractive destination for manufacturers looking to sidestep the hefty tariffs imposed on Chinese goods.

This anticipated boom in Mexico’s manufacturing sector is poised to create numerous economic opportunities, not only inflating the local job market but also spurring infrastructure development.

Moreover, Mexico’s existing free trade agreements with the United States provide a seamless pathway for goods produced in Mexico to enter the U.S. market duty-free.

This will likely encourage a migration of supply chains from China to Mexico, as companies seek to maintain competitive pricing while avoiding tariff barriers.

Furthermore, the Mexican government is expected to capitalize on this opportunity by rolling out incentives to attract foreign direct investment, making the country an appealing hub for manufacturing endeavors.

However, this transition is not without its challenges. Mexico will need to address several logistical and operational hurdles to fully realize its potential as an onshoring haven.

These include improving transportation networks, enhancing port capacities, and ensuring the security of investments against organized crime and political instability.

Additionally, workforce training and education will be crucial to equip the local labor force with the necessary skills to meet the demands of high-tech manufacturing industries.

As companies increasingly consider Mexico a viable alternative to China, the global trade landscape is likely to undergo a significant reconfiguration.

This shift will redefine international supply chains and alter geopolitical dynamics as countries reassess their economic alliances due to changing trade policies.

The next ten years will be transformative for Mexico, presenting opportunities and challenges as it steps into its newfound role as a manufacturing powerhouse in the global economy.

One important note. If President Biden slaps tariffs on Mexican goods, all bets are off here. Former president Trump has promised a 200% tariff on anything coming from Mexico (I guess because it’s twice as big as what Biden said).

Investment Opportunities

1. Industrial Real Estate: Due to the increasing demand for manufacturing facilities and warehouses, investing in industrial real estate in Mexico can be highly profitable. Companies moving their production facilities to Mexico will require modern, well-located spaces, driving up the value of industrial real estate properties.
2. Infrastructure and Construction Companies: Investing in companies that specialize in infrastructure and construction is another viable opportunity. As Mexico ramps up its efforts to improve transportation networks and build new industrial zones, companies involved in construction, building materials, and infrastructure development stand to benefit significantly.
3. Logistics and Supply Chain Companies: With the anticipated increase in manufacturing activities, there will be a heightened need for efficient logistics and supply chain management. Companies providing transportation, warehousing, and logistics services, especially those with a focus on cross-border operations between the U.S. and Mexico, present attractive investment opportunities.

Do you want to know more?

1. “The World is Flat: A Brief History of the Twenty-First Century” by Thomas L. Friedman: This book delves into the concept of globalization and how interconnected the world has become. It provides a useful context for understanding the global trade environment and how shifts in trade policies can impact economies.
2. “Global Supply Chain and Operations Management: A Decision-Oriented Introduction” by Dmitry Ivanov, Alexander Tsipoulanidis, and J?rn Sch?nberger: This book offers a comprehensive overview of supply chain and operations management, including strategies for global logistics, which are pertinent for understanding the logistical shifts driven by tariff changes.
3. Mexican wave of nearshoring firms is all at sea