Considering Nearshoring? 5 Reasons Why Mexico Should be at the Top of Your List
- German Brito
- Feb 6
- 4 min read
Updated: Mar 3
1. Production Sharing in Regional Supply Chains Benefits U.S. and Mexican Firms
Production sharing, or vertical specialization, is a phenomenon in which two or more countries participate in the manufacturing process of a specific good.1 This process often results in intermediary goods crossing back and forth across the border several times, where value can continuously be added before final assembly occurs. Production sharing occurs more often within regional supply chains, as shorter distances, reduced time zone discrepancies, and cultural familiarity can facilitate increased collaboration and innovation. In the case of the U.S. and Mexico, production sharing accounts for a large share of bilateral trade, as Mexican goods exports to the United States contain, on average, 40% U.S. content.2 More geographically extended supply chains, on the other hand, tend to contain much less U.S. content. For example, Chinese exports to the U.S. contain an average of 4%-5% U.S. content, as most of China’s inputs are sourced from regional trade partners in Asia.3 Additionally, NAFTA, and now USMCA, facilitate production sharing, as tariffs and investment barriers have been significantly reduced between the U.S. and Mexico. Thus, the regional nature of U.S.-Mexico trade encourages fuller integration of supply chains, benefitting both U.S. and Mexican firms alike.
Proximity to Mexico’s Large and Growing Consumer Market
Nearshoring to Mexico makes sense not solely as a manufacturing base for the U.S. market, but also as an entry point into Mexico’s own domestic market. Mexico’s economy is the 15th largest in the world, with a gross domestic product measured in nominal terms of $1.27 trillion dollars.4 Mexico is the second largest recipient of American exports after Canada, importing approximately $324.38 billion in 2022.5 Furthermore, Mexico’s demographic profile indicates the capacity for continued growth. Its population is large, currently estimated at 129 million, of which 68% or 88 million are of working age (ages 15-64), while 24% or 31 million are 14 years and under.6 Mexico’s population is also younger on average than the United States, having a median age of 29, 10 years younger than the median age of the United States. Finally, current trends project Mexico’s population to continue growing until 2052, where it will peak at 144.
Mexico’s Strength in STEM and Engineering Can Help Address Talent Shortages in the U.S.
Mexico graduates approximately 250,000 STEM students annually.8 Of these graduating students, approximately 143,000 attain degrees in engineering, manufacturing, or construction.9 The engineering data favorably compare to similar data in the United States, which produces approximately 200,000 engineering graduates annually.10 Notably, Mexico produces nearly 75% of the U.S.’s total, despite possessing a smaller national population of approximately one-third that of the United States. Thus, numerous Mexican STEM graduates can help address the labor shortages occurring in the United States, particularly in the emerging semiconductor, and electrical vehicle battery industries, among many others. Firms involved in these industries need only look to the medical device and automobile manufacturing industries, both of which have long taken advantage of Mexico’s skilled workforce to establish robust, integrated North American supply chains. Furthermore, firms should consider entering academic partnerships with reputable Mexican universities, such as Instituto Tecnológico y de Estudios Superiores de Monterrey (ITESM) and Universidad Nacional Autónoma de México (UNAM), to further the development of needed talent.
Mexico is a Conduit to Global Markets via a Series of Free Trade Agreements
Mexico has signed 14 free trade agreements (FTAs) with 50 other countries, giving Mexico preferential access to markets representing over 60% of global GDP.11 The United States, in contrast, has only signed FTAs with 20 countries, which represent just 10% of global GDP.12 Despite this, nearshoring to Mexico can help alleviate the limited US access to global markets. US firms can take advantage of the low RVC requirements in Mexico by exporting industrial inputs to Mexican factories for final assembly into finished goods, which can then be exported to various global markets in Europe and Asia with preferential treatment. RVC, or regional value content, is a percentage that determines the origin of a product in a free trade agreement, and by nearshoring to Mexico and exporting via Mexico to its FTA trading partners, US firms can more easily meet the origin criteria and benefit from preferential treatment, such as the 55% RVC requirement for autos produced between Mexico and Japan, and the proposed 66.2% for autos produced between Mexico and the EU.
Competitive Labor Costs and Financial Incentives
Nearshoring to Mexico can also be financially advantageous for companies due to the country's competitive labor costs and various financial incentives. Mexico's average manufacturing labor cost per hour is about $4.80 USD, compared to $29.50 USD in the United States.14 This difference in labor costs can significantly reduce the overall production costs for companies that choose to nearshore to Mexico. Moreover, the Mexican government has implemented various financial incentives to encourage foreign investment and job creation in the country. For instance, the Mexican government offers tax breaks, reduced customs duties, and grants for companies that invest in certain regions or industries. In addition, the country's maquiladora program allows companies to temporarily import materials and equipment duty-free, provided that the finished products are exported.15 This program has been especially beneficial for the manufacturing industry, as it allows companies to reduce costs and increase competitiveness.
1 “Working Together: Economic Ties between the United States and Mexico,” Wilson Center, n.d.,
2 “Working Together: Economic Ties between the United States and Mexico.”
3 “Working Together: Economic Ties between the United States and Mexico.”
4 “World Bank Open Data,” World Bank Open Data, n.d.,https://data.worldbank.org /indicator/NY.GDP.MKTP.CD?locations=MX.
5 TRADING ECONOMICS, “United States Exports By Country,” n.d., https://tradingeconomics.com/united- states/exports-by-country.
6 “Mexico - The World Factbook,” n.d., https://www.cia.gov/the-world-factbook/countries/mexico/#people-and- society.
7 “Mexico Population 2023 (Live),” n.d., https://worldpopulationreview.com/countries/mexico-population.
8 “Documentos Laborales | OLA,” n.d., https://www.observatoriolaboral.gob.mx/static/estudios- publicaciones/Documentos_laborales.html.
9 “Anuarios Estadísticos de Educación Superior - ANUIES,” n.d., http://www.anuies.mx/iinformacion-y- servicios/informacion-estadistica-de-educacion-superior/anuario-estadistico-de-educacion-superior.
10 “By the Numbers – IRA | ASEE,” n.d., https://ira.asee.org/by-the-numbers/.
11 Shannon K O’Neil, The Globalization Myth: Why Regions Matter (Yale University Press, 2022), chap. The United States’ Best Bet: More NAFTAs and Less America Firsts.
12 O’Neil, The Globalization Myth: Why Regions Matter, chap. The United States’ Best Bet: More NAFTAs and Less America Firsts.
13 “EU-Mexico Agreement: The Agreement in Principle” (European Commission), accessed May 2, 2023, https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/mexico/eu- mexico-agreement/agreement-principle_en; “SICE - Economic Partnership Agreement between Japan and Mexico,” n.d., http://www.sice.oas.org/Trade/MEX_JPN_e/JPN_MEX_e.asp#Article_23.
14 Justin Rose et al., “A Manufacturing Strategy Built for Trade Instability,” BCG Global, June 15, 2021, https://www.bcg.com/publications/2020/manufacturing-strategy-built-trade-instability.15 “Mexico - United States Department of State,” United States Department of State, July 28, 2022, https://www.state.gov/reports/2022-investment-climate-statements/mexico/.
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