Complementarity Mindset: Mexico’s Economy During a U.S. Reshoring Push

In recent years, a new bipartisan mantra has taken hold: National security is economic security, and economic security is national security. This idea led the United States to pursue a supply chain de-risking strategy for essential industries and materials, away from East Asia, and China in particular, to both friendly countries (“friendshoring”) and partner countries in close proximity to the United States (“nearshoring”). Mexico was one of the most obvious beneficiaries of these policies, experiencing a surge in investment thanks to free trade under the U.S.–Mexico–Canada Agreement (USMCA).

However, the second Trump administration has pursued economic security through a concerted effort to reindustrialize the United States. Gone are references to “nearshoring” in U.S. policy documents in favor of the “reshoring” of all types of manufacturing to the country. Throughout the first six months of the second Trump administration, the president spearheaded efforts to restructure the global economic order. On April 2, 2025, President Trump made headlines with the launch of a sweeping reciprocal tariff campaign dubbed “Liberation Day.” Notably absent from the long list of targeted nations were Mexico and Canada. While the North American partners avoided the reciprocal tariffs, both already faced intense pressure as the White House levied 25 percent tariffs on non-USMCA-compliant trade under the International Emergency Economic Powers Act (IEEPA), as well as global 25 percent tariffs on steel and aluminum.

To be sure, the U.S.-Mexico relationship is rife with challenges, foremost among them illegal immigration and drug trafficking, both of which constitute the basis for the IEEPA tariffs. But there are still significant opportunities. To capture them, Mexico must maintain a strategic mindset. The highly integrated nature of the two economies, the complexity of modern supply chains, and the impossibility that the United States could produce everything it needs at home will ensure that proximity and shared values remain key drivers of supply chain security. Mexico can still reap benefits as the United States’ neighbor if it can focus efforts to complement the Trump administration’s drive to reindustrialize the United States.

Bringing a Complementarity Mindset

Just days before President Trump took office, President Sheinbaum launched an ambitious roadmap, “Plan Mexico,” to catalyze industrialization efforts in Mexico, targeting sectors previously indicated by the United States as ripe for nearshoring. The strategy aims to grow Mexico’s economy and competitiveness by attracting significant foreign investment and strengthening domestic industries like manufacturing. As Mexico City rolls out its plan, it must think strategically about how it can complement the Trump administration’s reshoring efforts.

Strategic thinking will be intimately tied to finding some relief from the tariffs imposed by the Trump administration, as they undermine business planning and trade stability. Although the IEEPA tariffs have been announced, delayed, and reapplied, there is currently a carve-out for goods that are USMCA compliant. Mexico (like Canada) is in the process of significantly boosting the number of compliant exports to the United States, expecting 85–90 percent of exports will become compliant with the agreement’s provisions as a result. Imported automobiles are also tariffed at 25 percent, but those portions of the vehicles containing U.S.-made parts are exempted. The Trump administration doubled its global steel and aluminum tariffs to 50 percent, effective on June 4, which will have a significant impact on these industries, as Mexico was the third-largest exporter of steel to the United States and the ninth-largest exporter of aluminum in 2024. The Trump administration is also reviewing imports of pharmaceuticals and semiconductors under Section 232 of the Trade Expansion Act of 1962 and may impose tariffs in those sectors, either globally or against certain countries.

Under President Sheinbaum’s leadership, Mexico has repeatedly expressed its commitment to economic cooperation with the United States. Most notably, while Canada responded to President Trump’s 25 percent IEEPA tariff and 25 percent auto tariff with reciprocal measures, Mexico opted not to retaliate, choosing instead to negotiate directly with the White House and maintain open lines of communication with the president. Her efforts to curb migration, strengthen the border against fentanyl trafficking, and extradite drug traffickers to the United States may yet earn her dividends. At the same time, however, Mexico’s recent judicial reforms may complicate trade relations as they inject uncertainty into the rule of law.

Even as Mexico must manage and mitigate the tangle of tariffs, the United States will not be able to reshore every critical industry—or even every aspect of an industry’s supply chain. Significant capital outlays are required to relocate manufacturing to the United States as companies need to build or retrofit factories, purchase tooling and equipment, and invest in technology. This level of investment is risky, particularly in a volatile global economy, and would, in the end, be factored into the price the consumer pays for the end product. In addition, the United States’ labor costs in manufacturing are significantly higher than in Mexico. The average manufacturing wage in the United States in April 2025 was USD 28.80 per hour, compared to the average of approximately USD 6 (MXN 113) per hour in Mexico in early 2024. Lower operating costs, including cheaper real estate for factories, also favor Mexico. All of this means that despite some potential reindustrialization in the United States, the country will still rely on geographically proximate, reliable, and secure supply chains from its neighbors, especially Mexico.

Strategic Industries Poised to Complement Reshoring

Automotive Sector

Mexico’s automotive industry is increasingly competitive on the global stage. It ranks as the fifth-largest producer of automotive parts, the sixth-largest producer of automobiles, and the world’s leading exporter of tractor-trailers. The industry is vital not only to the domestic economy but also to Mexico’s trade relations with the United States and other markets. Through the USMCA, both Mexico and the United States gained from the automobile industry as increased partnership and collaboration on autos elevated North America’s ability to compete with other global vehicle markets.

Under the North American Free Trade Agreement and its successor, the USMCA, the automobile sector across the United States, Mexico, and Canada became increasingly integrated. Updated rules of origin for both automobiles and automotive parts under USMCA encouraged partners to produce more parts and cars within the region, increasing trade across the car production process. Through partnerships with numerous automobile companies, Mexico has secured production rights for over a dozen different car models, creating a diversified market and expanding its manufacturing capacity to a wider range of vehicles.

In 2024, Americans bought approximately 16 million cars, SUVs, and light trucks, 50 percent of which were made in the United States with domestic content at between 40 and 50 percent. The rest were imported. That year, Mexico shipped about 2.8 million light vehicles to the United States, accounting for 80.2 percent of Mexico’s total light-vehicle exports. During that period, nearly half of Mexico’s car exports to the United States were produced by U.S. automakers.

U.S. automakers produced more than 1,600,000 vehicles in Mexico in 2024, most for the U.S. market, and these vehicles have among the highest profit margins in many makers’ lineups. While some U.S. carmakers such as GM, Ford, and Stellantis have unused capacity in the United States to increase domestic production, the majority of corporations still view Mexico as indispensable for maintaining their product offerings on the U.S. market. Moreover, the tight labor market, rising cost of construction, and potential construction delays mean it could still be more profitable to produce in Mexico than in the United States despite the tariffs.

Regardless of whether some final assembly is reshored to the United States, Mexico should continue to strive to be a parts supplier of choice and aim to displace Chinese parts manufacturers, including ones established in Mexico, ahead of tighter rules of origin, which the United States is certain to insist upon during the USMCA review.

Electronics and Semiconductors

Already home to 516 semiconductor businesses, Mexico’s chip market is gaining momentum, driven by the country’s thriving electronics industry and world-leading manufacturing. As vehicles are increasingly reliant on advanced semiconductors, the demand from Mexico’s automotive industry will continue to rise, furthering the strategic importance of the sector. The United States, which has placed 40 percent of its semiconductor plants along the Mexican border states, is Mexico’s largest buyer of electrical and electronic equipment, importing $95 billion in 2024.

The Mexican government is actively positioning the country to be a center of chip design, production and assembly, testing, and packaging (ATP). Under the Kutsari Project (part of Plan Mexico), the Sheinbaum administration hopes to coordinate efforts between academia, industry, and government to develop specialized talent, promote technological innovation, and generate national intellectual property in the semiconductor sector. The government will establish a national semiconductor design center with additional hubs in the states of Puebla, Jalisco, and Sonora, to enhance chip design and technology. It will also seek to develop local wafer fabrication facilities, initially to support established industries like automotive and consumer electronics, then advancing to chips for mobile, satellite, AI, and medical purposes.

While Mexico may not yet be ready to take on the complete process of chip fabrication, as it works toward that goal, it can position itself as a valuable partner by offering adjacent activities like ATP. Foxconn, the world’s largest contract manufacturer for Apple, recently chose Mexico to host the largest manufacturing facility for bundling Nvidia’s GB200 chips.

The White House is considering issuing semiconductor tariffs on national security grounds. This would create significant financial hardship for the U.S. industry that relies on hundreds of billions of dollars in chips each year, many manufactured overseas. As an alternative, one expert suggests the U.S. could strike a semiconductor-focused agreement with allies to address the distortions in the market created by China. Mexico’s secretary of economy, Marcelo Ebrard, has caught on to this idea and emphasized the desire to add a chapter on semiconductors to the USMCA, betting it can position Mexico to reap major rewards.

Pharmaceuticals

Pharmaceutical trade is a high priority for both the United States and Mexico. A critical concern with global pharmaceutical supply chains is the widespread reliance on China and India. Through domestic efforts and collaboration with the United States, Mexico has significantly strengthened its pharmaceutical industry. In 2023, Mexico exported the majority of its pharmaceutical products—valued at $2.5 billion—to the United States. However, Mexico’s share of total U.S. pharmaceutical imports is about 1.5 percent, leaving plenty of room to compete against larger players, China and India.

Approximately 400 laboratories manufacture pharmaceuticals in Mexico. As the second-largest pharmaceutical market in Latin America, Mexico hosts branches of 20 of the 25 largest pharma companies in the world. Mexico not only plays a central role in pharmaceutical trade with the United States, but it also hosts U.S. firms that benefit from expanded access to broader Latin American markets.

A recent CSIS commentary outlines how the United States and Mexico can expand cross-border collaboration in pharmaceutical production and trade. The United States will remain Mexico’s largest export market for pharmaceutical products, and if it plays its cards right, U.S. industries could see a significant boost in trade access across Latin America.

Critical Minerals

Today, critical minerals have become a major chokepoint for China, as witnessed in the recent trade deal to ease minerals and rare earth exports. A history of overreliance on China, as well as China’s imposition of strategic export controls, bans, and price manipulation, has led the United States to look for more reliable sources of critical minerals. Much of the focus has been on the potential of Canada, Australia, Greenland, and Ukraine to fulfill the United States’ critical minerals needs. Yet in 2024, Mexico was the second-most significant source of mineral imports for the United States, trailing only Canada. Unlike many manufactured goods, if a country is not blessed by the appropriate geology, it simply cannot reshore mining (though processing may be a different story).

Mexico ranks among the world’s top producers of copper and zinc, two metals central to electrification and industrial modernization. It also holds significant, though underdeveloped, reserves of antimony and rare earth elements, both minerals with critical national security applications. As a potential source of these minerals, Mexico can directly contribute to the theme that economic security is national security.

In 2023, Mexico approved a set of new mining laws, which shortened concession times, strengthened consultation requirements, increased royalty payments, tightened environmental regulations, and expanded liability legal infractions. New rules governing the laws have yet to be approved, and combined with a slowdown in permitting processes, have hindered the performance of the mining industry. The government should make an effort to issue the rules, especially as President Sheinbaum has shown signs of openness toward the industry.

Agriculture

Mexico is a regional and global agricultural powerhouse. In 2024, the country exported $49 billion in agricultural products to the United States. Mexico plays a central role in North American agricultural trade, benefiting from a favorable climate, established markets, and a strong export base in specialty crops and beverages. Most significantly, U.S.-Mexico agricultural trade is largely complementary, meaning the United States tends to export different commodities to Mexico than Mexico exports to the United States, making this a market that, broadly speaking, should be isolated from most bilateral trade tensions (the United States is however imposing a 21 percent tariff on Mexican tomatoes as of July 14).

Despite this broad complementarity, President Trump has indicated his global tariff barriers will help U.S. farmers sell more products within the country. But this bumps up against the fact that U.S. agricultural production relies on seasonal labor, much of it from unauthorized immigrants, and the Trump administration’s crackdown on these workers will lead to shortages of labor on U.S. farms and increase labor costs. Over the long term, this may lead to technological innovations to improve U.S. farm productivity, but one report finds that in the short term, lack of farm labor will lead to higher production costs and reduced domestic agricultural production.

Ironically, the crackdown on unauthorized immigrants may see a parallel rise in Mexican agricultural exports to the United States. To expand its markets, Mexico should focus its efforts on products where there is less competition within the United States and where it can provide seasonal complementarity.

Conclusion

The intertwined nature and complementarity of the U.S. and Mexican economies mean that even if reshoring gains momentum in the United States, Mexico will continue to be a primary exporter of consumer products, commodities, and agricultural products to its northern neighbor. The United States cannot produce everything it needs at home, does not have all the resources it needs domestically, and Mexico’s lower labor and operating costs, along with geographical proximity, are clear advantages. In a scenario where tariffs toward Mexico are reduced, or eliminated, and the USMCA is renewed, and perhaps expanded with new chapters, the country could attract new investment and increase its exports to the United States, playing a complementary role in the U.S. reshoring effort. However, a “complementarity mindset” will be required to take advantage of the moment’s opportunities.

This commentary is made possible by the generous support of BBVA Mexico’s Smartshoring Initiative.

Christopher Hernandez-Roy is a senior fellow and deputy director of the Americas Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Eitan Casaverde is a former research intern with the Americas Program at CSIS. Natalia Hidalgo is a research intern with the Americas Program at CSIS.