Mexico Means Opportunity for the U.S.
“We are very important neighbors, we rely on each other much more than what you see in the press. In the papers, Mexico is everyone’s favorite pinata. Actually, Mexico helps the U.S. be competitive. Mexico is not the enemy—we are a partner helping the US be competitive around the world.”
Jorge Esteve of ECOM Agroindustrial, one of Mexico’s leading businessmen, laid out this counterargument to popular American perceptions over lunch at the Club de Industriales, high over Mexico City’s sprawling skyline.
This argument was part of the eye-opening reality we absorbed during my delegation’s recent visit to Mexico City, facilitated by the U.S.-Mexico Foundation, for talks with a wide range of business, political, and civil society leaders.
Contrary to the dominant narrative in the United States that Mexico is largely a problem for and source of threats to America, our group of a dozen corporate, government, and civic leaders and policymakers saw a different story. In fact, deeper economic and political engagement with Mexico, who, along with Canada, makes up a highly integrated North American economic bloc, affords a great opportunity to grow and strengthen both of our economies and join an alliance of nations willing to work together to check authoritarianism around the globe.
The COVID-19 Pandemic revealed massive dependence on China for critical supplies and materials and increased international business unease with China’s use of economic coercion. Both Mexico and the United States are now the beneficiaries of a global movement of capital and investment out of China.
More than twenty-five years ago, before China opened up its economy, Mexico was the United States’ second-largest largest trading partner after Canada. China seized first place following its entry into the World Trade Organization and built itself out as the world’s low-cost manufacturing center. Today, however, with outside investment in China plummeting and the global corporate search for low-cost, reliable, non-politically influenced supply chains, Mexico is now our largest trade partner. As companies reconfigure production and supply chains to move closer to the giant U.S. marketplace, Mexico is the chief beneficiary of the global “nearshoring” phenomenon.
Our visit made clear that Mexico and the move to “nearshore” isn’t about taking jobs from Americans by making products cheaper to send back across the border. As we’ve written before for Brookings, much of Mexico’s bilateral trade is products co-produced with the United States, Canada, and other nations. American, Mexican, Canadian, and even many European and Asia-based companies are engaged in a growing network of material sourcing and component part manufacturing. This is the trade in intermediate goods that flows across borders, including but not limited to processed foods, automobiles, and air conditioners. We heard lots of examples from globally engaged companies like 3M, Toyota, and Canadian-based TC Energy that this North American co-production system produces an expansion of manufacturing and business services facilities and good paying jobs in all our countries—while keeping costs competitive and businesses profitable.
Spurring the growth of this North American co-production system are the massive new investments embodied by the CHIPS and IRA Acts—huge place-based investments in science, innovation, and technology that lift all economic boats by creating new jobs on both sides of the border. These investments are turbo-charging the growth of highly integrated international supply chains producing semiconductors, EVs, and other energy-related products.
While (in the author’s view) the IRA's domestic content requirements counterproductively prevent good allies in Europe and Asia from sharing in the growth of the clean energy product ecosystem, the USMCA (the updated NAFTA free trade agreement) treats all North American production as “domestic content.” Consequently, it is already fueling a burst of new investment and business activity while maintaining adherence to improved environmental and labor standards.
Mexico’s newly-elected, first female president, Claudia Sheinbaum, is a hand-picked protégé of outgoing President Andrés Manuel López Obrador, who fashioned himself a left-wing populist in the mode of Venezuela’s Hugo Chavez. Nevertheless, Sheinbaum appears to be a pragmatist and economic realist. An environmental engineer by training, she realizes that Mexico’s most significant challenge (and a challenge for the continued growth of Mexico’s leg of the North American production food chain) is the lack of energy supply and transmission capability. Hopes are high that, unlike her predecessor, who protected Mexico’s dominant oil and gas sector from evolution, President-Elect Sheinbaum sees expanded clean energy as part of the energy solution and will likely partner with Washington in developing more clean energy sources.
Growing the bi-national economy, increasing clean energy production, and ensuring environmental and worker rights safeguards are not the only areas in which Mexico is a critical ally. The United States is already getting more help than popularly appreciated from Mexico in the geopolitical strategic competition between open, rules-based democratic powers and their authoritarian rivals.
Mexican political and civic leaders we met with were surprisingly sensitive to U.S. strategic and political interests—in particular, the desire to keep China from exporting its authoritarian development model and seeking economic and political advantage by controlling emerging sectors like critical minerals and electric vehicles. Appreciating that the United States is far and away Mexico’s biggest economic partner and economic ally, Mexican leaders (unlike most other Latin and South American countries) are preventing China from slipping Chinese-made products through Mexico to avoid U.S. sanctions and content requirements.
Mexico still faces difficult challenges that complicate a “win-win” economic and political relationship with the United States. Cartel-induced corruption, violence (thirty-four local officials and candidates were murdered between last September and May), and extortion tactics aimed at controlling local governments and businesses remain big problems. These ruptures in the rule of law introduce security-based worries and costs that crimp an otherwise promising investment environment.
On the omnipresent immigration issue, Mexico is doing a lot more than reported to stem the migration and border crisis, which is now dominated by non-Mexicans traversing the country toward the Rio Grande. Despite making its own development investments in Central America and quietly helping U.S. administrations by detaining and sending migrants back down south, Mexico as the “bad guy” still dominates U.S. immigration narratives.
The United States will benefit enormously both economically and from a security point of view if we stop seeing Mexico as a “problem” and more as an opportunity. We should roll up our sleeves and tackle the shared challenges of migration and gun trafficking (our lax laws give cartels easy access to all the high-powered weaponry they need) and support the new Sheinbaum administration to make more headway on establishing the rule of law. This while putting the pedal to the metal of the economic investments in new plants and equipment, energy production and transmission, and the investments in people in the form of more education and technical training of the workforce to grow out of the North American economic juggernaut. These kinds of shared actions can turn the nearshoring moment into a true “allyshoring” experience in which the United States and Mexico realize shared goals—economic growth and more good-paying jobs, support for environmental protections, and a less corrupt and transparent business environment.
On our trip, we heard lots of exciting discussions about 2026, when North American nations will collectively host the World Cup, the most watched (and traveled to) sporting event in the world by far. This event can be a potent symbolic opportunity and time—to show the world what Mexico, Canada, and the United States can do together by embracing greater economic and political engagement rather than finger-pointing and trying to go it alone.
John Austin is a Nonresident Senior Fellow at the Brookings Institution and affiliated faculty with the University of Michigan William Davidson Institute.
Image: WitR/ Shutterstock.com.