In the wake of Trump’s tariff chaos, Mexico’s economy needs a rethink: A perspective from our CEO, Part 1

Trump’s tariffs and accelerating trends successful robotics and AI should beryllium a wake-up telephone for Mexico.

Part I: How did we get here?

Part II: Why is simply a rethink of the Mexican system necessary?

Part III: What could a rethink of the Mexican system look like?

The intent of this three-part bid is to bespeak connected the emerging trends of commercialized protectionism (tariffs), AI and robotics, see the imaginable impacts connected Mexico and foster a treatment connected imaginable solutions. Please stock your thoughts successful the comments conception and let’s person an inspiring and engaging treatment and debate.   

Part I: How did we get here?

Until recently, the satellite has operated nether the premise that accrued planetary commercialized and globalization would “raise each boats” and summation surviving standards for each who participated.

Since the extremity of World War II, this has been the ascendant reasoning of however to turn the planetary system and bring astir amended integration. The exemplary was to bring successful much trading partners, merchantability much to each other, turn the market, summation standards of surviving for each and assistance guarantee bid done the interconnectedness created by trade.

One by one, much countries were brought into the mix: archetypal the countries of Western Europe, past Eastern Europe, Japan, Korea, Taiwan, the countries of Southeast Asia, China and of course, Mexico. Mexico was somewhat precocious to the party, being a comparatively closed system until the North American Free Trade Agreement (NAFTA) was signed with the United States and Canada successful 1992. This statement ushered successful a question of escaped commercialized agreements signed betwixt Mexico that present includes a full of 13 agreements covering 50 countries.  

Mexico’s relation successful the escaped commercialized satellite was a earthy and logical 1 — its little outgo of labour and geographic proximity to the United States made it a cleanable co-production spouse for manufacturing goods. When NAFTA was archetypal signed, galore successful the U.S. feared that manufacturing jobs would determination to Mexico to the detriment of American workers (the infamous “giant sucking sound” coined by Ross Perot).

The signing of the North American Free Trade Agreement (NAFTA) successful 1992. (UNAM)

Indeed, galore caller manufacturing jobs were created successful Mexico, but it was China’s introduction into the World Trade Organization (WTO) that yet had the biggest interaction connected U.S. workers and communities. Millions of jobs and countless factories went distant arsenic the accumulation of galore goods was moved to China.

The Mexican manufacturing boom

Early successful my career, the archetypal institution I worked for was portion of this trend. Originally with manufacturing located lone successful Wisconsin, successful the aboriginal 1990’s the institution bought a works successful cardinal Mexico expecting to nonstop manufacturing enactment there. Although immoderate enactment was yet moved there, acold much was sent to China. This was contempt the information that galore of the extremity customers were really successful Mexico.  It was cheaper to nutrient successful China and vessel to Mexico than to nutrient locally successful Mexico.  

Mexican manufacturing implicit clip became progressively competitory successful definite marketplace segments, and up until the COVID-19 pandemic, a “new normal” was settling successful with China, Mexico and the U.S. each focused connected the products that they could astir competitively produce.  

Of course, arsenic we each know, the pandemic changed everything.

Supply chains broke down and companies everyplace began to question their manufacturing footprints. Words similar nearshoring and friendshoring joined our vernacular, and Mexico seemed highly good positioned to beryllium a large beneficiary of the caller manufacturing and accumulation trends taking signifier astir the world.  

Things changed quickly.

In 2023, Mexico, for the archetypal clip successful implicit 20 years, became the starring supplier of goods to the United States. Mexico was intelligibly taking manufacturing marketplace stock from China and companies from astir the globe were expanding accumulation and reinvesting profits into their Mexican operations. In 2024, the state further accrued its stock of exports to the U.S., with products from Mexico representing implicit 16% and China falling beneath 14%.  

As 2024 ended and Mexico closed the twelvemonth with a grounds magnitude of Foreign Direct Investment (FDI), astir radical were feeling beauteous bully astir however the state was positioned going forward.

Is nearshoring going to extremity earlier it truly begins?

Granted, the “new” constituent of FDI was concerningly low, but astir radical chalked that up to the uncertainty of the twelvemonth fixed that determination were statesmanlike elections successful some Mexico and the United States. Newly elected President Sheinbaum seemed to beryllium acold much “business friendly” than her predecessor, the ostentation complaint was coming down, the peso was stabilizing and some the planetary and Mexican economies seemed connected steadfast footing.  

But things changed quickly.

Trump’s predetermination triumph brought astir a abrupt question of uncertainty and attraction to Mexico.  Most of the archetypal demands from the United States were that Mexico power migration, ace down connected the cartels, halt the travel of fentanyl and judge deportees. All important issues, but nary that initially seemed to beryllium a hazard to economical momentum.

Few radical expected that Trump would truly effort to undo the escaped commercialized statement helium proudly signed with Canada and Mexico during his archetypal word arsenic president. His archetypal threats of tariffs were straight linked to wanting to spot much advancement from Mexico connected these non-economic issues. And to galore radical connected some sides of the border, the statement seemed fair: “Mexico, assistance america cleanable up the issues that are causing problems successful the U.S., and we volition support our escaped commercialized statement intact.” 

That being said, successful conscionable the past fewer weeks, the communicative from the United States connected tariffs changed.

Trump’s tariff sermon takes a turn

Despite immoderate archetypal speedy and tangible advancement from Mexico connected the precise issues that Trump initially emphasized, Trump has refocused the “need for tariffs” for economical reasons. Trump began to question the request for immoderate manufacturing astatine each to instrumentality spot extracurricular of the United States. He continued to lament the mislaid jobs and breached communities caused by moving enactment abroad, and insisted that the absorption needed to beryllium connected bringing these jobs backmost to the U.S.  

And truthful present we are today. The astir communal statement against each of this is that the U.S. doesn’t person capable labor, nor the vigor procreation capacity, to beryllium capable to bring backmost a important magnitude of jobs.

A logical interest is that moving enactment backmost to the higher-paid U.S. workforce and higher-cost manufacturing situation volition origin important inflation. But what if that is excessively overly simplistic oregon possibly adjacent an outdated explanation? What if companies could and bash determination important enactment back, the workforce and vigor accumulation is found, and ostentation is kept successful check?  

Let’s adjacent wholly hide astir tariffs for a moment. Although it mightiness dependable similar subject fiction, see the interaction that accrued robotics could person connected the manufacturing workforce of the future. Consider what rapidly improving AI and mill “digital twins” could bash to amended manufacturing efficiencies. Consider for a infinitesimal that we mightiness conscionable beryllium connected the brink of a caller concern gyration not seen successful decades. 

And past see what this could each mean for Mexico and for what a rethink of the Mexican system could look like. Part II volition beryllium published time successful MND.

Thanks for reading.

Travis Bembenek is the CEO of Mexico News Daily and has been living, moving oregon playing successful Mexico for astir 30 years.