Bringing supply chains back to Mexico: Opportunities and obstacles

International trade and investment have been buffeted over the past three years by US-China trade war tariffs, high-technology export controls, and other economic sanctions targeting Chinese policies. The COVID-19 pandemic has further disrupted production and created bottlenecks transporting goods within and between countries. International businesses have had to recalibrate their supply chains to make them more resilient to these and other shocks. Firms needing to diversify from China, in whole or part, because of rising Chinese costs and mounting trade and investment restrictions are now considering whether to reorganize production across Asia to complement continuing Chinese operations or to shift investment out of Asia to shorten supply chains serving the US market. The most promising candidate for large-scale nearshoring is Mexico, due to its geography, existing high level of economic integration with the United States, and participation in the high-standards United States-Mexico-Canada Agreement (USMCA). But so far at least, Mexico has not lured substantial new investments that could supplant Asian production serving the US market. In a collaborative effort to explore the feasibility and benefits of relocating production to Mexico, the Center for Strategic and International Studies (CSIS) and the Peterson Institute for International Economics (PIIE) organized a group of leading scholars and former officials to offer their individual perspectives in this collection of short essays. The evidence cited in this volume suggests that Mexico faces significant competition for investments in restructured supply chains. The authors set out the case for a shared Mexican and US interest in building resilient supply chains in North America and prioritizing the economic policies Mexico needs to succeed as a destination for relocated production from China. To attract more investment diversifying out of Asia, Mexican officials need to recast domestic economic policies and recommit to combating corruption and organized crime to make Mexico more attractive to domestic and foreign investors. The essays also explore how the United States, which has tended to focus too narrowly on border and migration issues in its bilateral agenda, can encourage the needed policy changes in Mexico. So doing would in turn deepen North American economic integration and enhance US and Mexican competitiveness. Joint project with the Center for Strategic and International Studies funded by Chubb Ltd.