By Aarón Antonio Arreola Burgos
International trade is undergoing profound changes driven by geopolitical tensions, protectionist dynamics, and an increasing regionalization of supply chains. In this context, trade relations between Mexico and North America play a pivotal role, with the United States-Mexico-Canada Agreement (USMCA) as the cornerstone of economic integration.
However, the prospect of a second Donald Trump presidency introduces significant uncertainty, potentially reshaping these relationships in an increasingly competitive global landscape.
International trade has undergone profound transformations in recent years due to factors such as the COVID-19 pandemic, the US-China trade war, and the conflict between Russia and Ukraine.
These events have highlighted the need to diversify supply chains and promote regional economic resilience. For Mexico, this evolving environment has created significant opportunities, positioning it as the United States’ top trading partner in 2023, surpassing Canada and China.
USMCA and Regional Interdependence
The USMCA has redefined the rules of trade in North America, cementing the region as a robust trading bloc. By 2024, daily bilateral trade between Mexico and the United States exceeded USD 2.3 billion, highlighting the depth of this relationship. Under this framework, sectors such as automotive manufacturing, medical devices, and technology have emerged as key economic drivers.
However, the agreement is not without its challenges. Under a Trump administration, the possibility of renegotiations, tariff threats, or adjustments to the rules of origin in the USMCA could disrupt the current balance. Trump, known for his protectionist trade policies, may prioritize US domestic production, imposing higher costs on Mexican products in critical sectors like automotive and agriculture.
Nearshoring: A Catalyst for Mexico
Nearshoring — the relocation of supply chains closer to end markets — has gained relevance amid growing economic rivalry between the United States and China. Thanks to its geographical proximity, competitive labor costs, and preferential access to the US market, Mexico has become an attractive destination for this trend.
In recent years, companies in sectors like automotive, technology, and advanced manufacturing have increased investments in Mexico, particularly in border states such as Nuevo León, Chihuahua, and Sonora.
However, fully capitalizing on this opportunity requires overcoming significant challenges in infrastructure, regulatory efficiency, and workforce development. Investments in technology, logistical connectivity, and coherent public policies are essential to attract high-value-added industries like advanced manufacturing, electromobility, and semiconductors.
Bilateral Tensions: Trade and Politics
Trade does not operate in a vacuum; it is deeply influenced by politics. During his first term, Trump leveraged issues such as migration and border security as economic pressure points on Mexico, implementing punitive tariffs and trade restrictions to secure concessions. A second term could revive these strategies, generating uncertainty for key sectors of the Mexican economy.
On the other hand, the US policy of reducing dependency on China could enhance Mexico’s strategic role. While this presents opportunities, success hinges on Mexico’s ability to create a competitive and attractive investment environment and strengthen diplomatic relations with its North American partners.
Strategies for Navigating a Complex Future
Mexico ideally should adopt a strategic perspective to ensure stability and growth in its trade relations with North America. Key recommendations to this end would include:
Market Diversification: Reducing reliance on the US market by strengthening trade agreements with Europe, Asia, and Latin America. This diversification will expand export opportunities and mitigate economic risks.
Strengthening USMCA: Collaborating with Canada to protect shared interests and ensure compliance with the treaty’s provisions against potential unilateral US policies.
Infrastructure and Competitiveness: Investing in logistical infrastructure, including ports, highways, and digitized customs processes, to facilitate trade and lower operational costs.
Promoting Nearshoring: Implementing fiscal incentives and public policies prioritizing strategic industries, particularly those that promote skilled employment and high-value-added production.
Prospects for Mexico in 2025
In an optimistic scenario, Mexico can consolidate its role as a key player in North American supply chains, leveraging its geographic position and integration with the USMCA.
Sectors like electromobility, medical devices, and technology have the potential to attract significant investments, especially if the Mexican government drives structural reforms and strengthens governance.
However, a less favorable scenario could emerge if challenges related to infrastructure, competitiveness, and bilateral tensions remain unaddressed. Failure to progress in these areas would limit Mexico’s potential to capitalize on global trends like nearshoring, leaving significant opportunities untapped.
Addressing Future USMCA Renegotiations: A Strategic Framework
1. Understanding the Current Context
The USMCA replaced the North American Free Trade Agreement (NAFTA) with stricter provisions on automotive rules of origin, labor standards, and digital trade, reflecting the evolving economic landscape.
While it has boosted North American competitiveness, tensions remain over enforcement mechanisms, environmental regulations, and labor rights compliance.
A future renegotiation, possibly driven by the US administration’s protectionist agenda, could revisit these contentious areas. The challenge will be to balance demands for stricter trade rules while preserving Mexico’s competitive advantages, particularly in manufacturing and nearshoring.
2. Strategic Priorities for Mexico
a. Preserving and Strengthening Automotive and Manufacturing Sectors
The automotive industry, a pillar of USMCA trade, must remain a priority. Mexico should advocate for flexible rules of origin to maintain its attractiveness as a production hub. This includes ensuring that labor provisions do not unfairly target Mexican manufacturers, while demonstrating compliance with agreed labor reforms.
b. Enhancing Nearshoring Benefits
Nearshoring trends offer Mexico an opportunity to attract investments redirected from Asia. Mexico should use negotiations to emphasize its role as a reliable partner for supply chain resilience, particularly in technology, electronics, and renewable energy sectors.
c. Addressing Digital Trade and Emerging Technologies
Digital trade provisions in the USMCA are increasingly relevant. Mexico should push for expanded cooperation in e-commerce, data flow protections, and cybersecurity, ensuring a framework that promotes innovation while respecting national sovereignty.
d. Balancing Environmental and Labor Demands
Environmental and labor provisions are likely areas of contention. Mexico can take a proactive stance by showcasing its progress on these fronts, while seeking flexibility to address domestic challenges without jeopardizing trade flows.
3. Strengthening Bilateral and Trilateral Alliances
a. Bolstering Relations with Canada
Canada and Mexico share common concerns regarding US unilateralism. Strengthening this partnership can create a united front to counter excessive demands during renegotiations, particularly in areas like dispute resolution and trade remedies.
b. Deepening US-Mexico Collaboration
Mexico should proactively engage with US stakeholders, including businesses and lawmakers, to highlight mutual benefits of the USMCA. Building coalitions with industry groups and unions can counterbalance protectionist narratives.
4. Policy and Infrastructure Investments
a. Investing in Trade Infrastructure
Improved ports, railways, and border facilities are essential to meet increasing trade demands. Mexico should link these investments to USMCA goals, demonstrating its commitment to regional competitiveness.
b. Strengthening Workforce Development
Investing in education and training for high-demand industries, such as technology and renewable energy, will make Mexico a more attractive partner in the next phase of USMCA trade.
5. Scenario Planning for Future Negotiations
a. Preparing for Trade Disputes
Mexico should strengthen its legal expertise to handle disputes under the USMCA’s mechanisms. This includes addressing potential challenges related to labor, environmental violations, or technical barriers to trade.
b. Diversifying Trade Partners
While focusing on USMCA renegotiations, Mexico should continue diversifying its export markets. Enhanced ties with Europe, Asia-Pacific (via CPTPP), and Latin America can reduce overdependence on the US market.
Conclusion
The future of trade relations between Mexico and North America will be determined by a complex interplay of economic, political, and geopolitical factors. The USMCA provides a solid framework for regional integration, but its long-term success depends on Mexico’s ability to adapt to a changing global environment.
Market diversification, infrastructure improvements, and the strategic exploitation of nearshoring trends will be critical to positioning Mexico as an indispensable trading partner in the 21st century.
With the right strategies, Mexico can establish itself as a cornerstone of North American supply chains, contributing not only to its own economic development but also to the region’s overall stability and prosperity.
Aarón Arreola currently serves as Industrial Promotion Coordinator at the Nogales City Government in Mexico. He leads strategic initiatives connecting global manufacturing companies with investment opportunities in the region. His work includes collaborating with industries from countries such as China, Taiwan, Israel, and the US. He is also Vice President of the National Chamber of Commerce of Nogales. He can be reached at aaron.arreola@inteligen-t.com.
Factum is an Asia-Pacific-focused think tank on International Relations, Tech Cooperation, and Strategic Communications accessible via www.factum.lk.
The views expressed here are the author’s own and do not necessarily reflect the organization’s.
