3. Why Mexico? Location, free trade and labor.

Four factors play a significant role in Mexico’s competitive advantage:

• Location—Monterrey, Mexico’s main manufacturing hub, sits three hours from the U.S. border, which suits companies that serve North American consumers.
• Trade—Global trade policy plays a significant role in the nearshoring tend. Mexico is the only developing country that has free trade agreements with the U.S., Canada, the European Union and Japan. Mexico is particularly integrated with the U.S., with 27-45% of the value of their trade in the form of intermediate goods­ that require further processing before reaching the final retail consumers.[1]
• Regulations—Recent regulatory drivers advance the alignment between North American supply chains. Although U.S.-China back-and-forth tariffs were first applied in 2018, most of them were applied on commodities, such as metals and agricultural products. More recent regulatory decisions—such as restrictions on sales of advanced chips, tax credits for North American-made solar panels/electric vehicles /semiconductors and legislation aimed at improving supply chain transparency, etc.—will continue to pull manufacturing supply chains for high-value goods closer to U.S. consumers. For example, during 2021-2022, more than US$70 billion in EV factory construction was announced in the U.S., four times 2017 levels,[2] following these regulatory changes. 
• Labor—Mexico has a young labor pool by global standards: 42% of its population (49 million workers) is between the ages of 20 and 49. Mexican manufacturing workers also earn a wage similar to those in China (25% lower when adjusted for productivity[3]) or approximately 20% the cost of a U.S. manufacturing employee. Given labor scarcity in the U.S. and other developed nations, this large skilled workforce represents a sizable advantage for Mexico.

EXHIBIT 5: LOGISTICS REAL ESTATE, CARGO TRANSPORT AND POPULATIONS DISTRIBUTION, NORTHERN MEXICO
Logistic market square footage, number of annual cargo land border crossings and population

Endnotes

1. Murillo-Villanueva using OCDE data, 2022.
2. Center for Automotive Research, 2022.
3. NAPS, 2022.

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