Georgetown Americas Institute

The event featured Dr. Luis de la Calle of consulting firm De la Calle, Madrazo, Mancera, S.C. (CMM) who formerly served as undersecretary of international business negotiations at the Ministry of Economy, as well as Dr. Luz Maria de la Mora, former Mexican undersecretary of foreign trade. The conversation was moderated by GAI Resident Fellow Antoni Estevadeordal.

The Four “Mexico Moments”

Mexico is experiencing positive economic trends, receiving USD 36 billion of foreign investments in 2022. Dr. De la Calle contextualized the current scenario by describing four “Mexico moments'' in the last three decades. The first moment was the negotiation of the North American Free Trade Agreement (NAFTA), propelling Mexico onto the world economic stage. While an exciting prospect at the time, the country did experience significant growing difficulties, including a lack of available financing for capital expansion and shortly after the admittance of China into the World Trade Organization (WTO).

The second “Mexico moment,” according to Dr. De la Calle, occurred with the election of President Vicente Fox in 2000, signifying to the world that not only was Mexico ready to modernize economically, but also that the country was ready to operate democratically. The third moment, according to Dr. De la Calle, occurred with the massive structural reforms that took place in 2013-2014 for the energy, telecommunications, and labor sectors, among others.

Bringing this historical context to the present, Dr. De la Calle admitted of the four “Mexico moments,” the nearshoring phenomenon is perhaps the strongest one for two reasons: first, change is being driven by external forces rather than internal forces, as opposed to what happened in the previous moments. In this occasion, profound geopolitical and economic changes caused by COVID-19, the Russian invasion of Ukraine, and rising economic power of China, have led key leaders outside of Mexico to encourage the country’s economic integration within North America.

Secondly, the current macro and microeconomic situation of today in Mexico is stronger than what was during the previous “Mexico moments”. The country is the twelfth largest importer and exporter worldwide and contributes more than 2% of global business. Mexico has increased its financial capacity and access to long-term markets and capital. Dr. De la Calle also noted that companies that operate in Mexico are now much more productive than they were 30 years ago.

A New Global Context

Dr. de la Mora commented that the fourth “Mexico moment” is happening in a brand new economic and political environment marked by integration and globalization. She remarked on the increasing presence of China, noting the “Made in China 2025” strategic plan released in 2015 indicating that the country would become a leader in technology production and innovation. This set off massive changes in China, with the government providing subsidies to encourage growth in the country’s tech sector. Dr. de la Mora further explained that now in the United States, there is bipartisan support that seeks to contain and detain this ambition of China because China is not playing by the WTO rules.

Commenting on what tools does Mexico have to confront this rivalry of technology, commerce, and investment, she mentioned that focusing on Mexico’s role in the commercial sector is the best course of action. She explained that China was inducted into the WTO in 2000 in order to ensure that the country complied with the multilateral system of business and to discipline internal politics that WTO member countries did not agree with. Two decades later, many countries are frustrated because China has not followed WTO regulations, particularly in regard to intellectual property and the coercive use of the economy to alter politics. According to Dr. de la Mora, because the WTO is not enforcing its own rules sufficiently, Mexico stands to benefit as countries like the United States look to change the direction of business.

In the United States, the business sector itself has faced tough criticism recently as it is seen as the cause of structural economic problems like poverty, inequality, and deindustrialization, among others. The Biden administration is focusing more on domestic labor policy rather than international trade agreements. Dr. De la Mora believes there will be a return to a more nationalistic economic policy focused on returning production to the United States and reindustrializing the country.

“Mexico's comparative advantage in terms of foreign trade is very simple - we are the only large emerging country in the world that can have deep economic integration in terms of rules in North America with Latin America, Asia, and Europe.” - Dr. Luis de la Calle

While there are strong competitors as companies move away from China — like Vietnam, Taiwan, South Korea, Indonesia, Malaysia, India — Mexico has an advantage due to the United States-Mexico-Canada Agreement (USMCA), which is a part of a network of 14 free trade agreements the country has with 52 countries around the world.

Is Nearshoring Happening Today?

In a recent report, the Inter-American Development Bank estimated that “nearshoring could add $78 billion annually in additional exports from Latin America and the Caribbean” (IDB 2022), and that Mexico stands to benefit significantly. Panelists analyzed import-export data, as well as recent figures of foreign direct investment in the country, to determine whether or not Mexico is already experiencing the effects of nearshoring.

While foreign direct investment (FDI) did increase in 2022 (USD 38 billion), it did at a rate on par with previous years. However, Dr. De la Calle warned that only focusing on FDI paints an incomplete picture of the current scenario, because although FDI has not experienced significant change, rates of exports to the United States and import of capital goods into the country are proof that early nearshoring processes are already boosting the Mexican economy. Another indicator that nearshoring is starting to arrive in Mexico is the increased demand for industrial park space.