Alonso Cervera
Executive Director of Economic Studies & Public Affairs at Santander Mexico

Mexico seeks to strengthen its position as main trading partner of the US.

Santander México economists analyse the pillars of growth in Latin America’s second largest economy.

Geography boosts foreign trade

Mexico is benefiting from a shift in global trade patterns which has delivered a welcome boost to its manufacturing and export services sectors.

The US has been increasing imports from its southern neighbour and reducing the volume of goods it ships in from China since early 2022: the result is that Mexico has become America’s main trading partner.

Today, around 80% of Mexico’s exports go to the US – 90% of which are manufactured goods. Mexico’s economy can only benefit further if this trend continues.

Nearshoring makes Mexico a key US manufacturing ally

Mexico is profiting from nearshoring, a term that describes a strategy by companies from the US, or elsewhere, to relocate part of their production closer to home to shorten supply chains and safeguard against global shocks, such as pandemics or geopolitical conflicts. It also reduces transport costs, which have risen sharply in recent years.

Nearshoring in Mexico is occurring in several forms and a recent study by the country’s central bank found that 18% of manufacturers have already benefited from the trend.

Some foreign exporters are setting up their own operations in Mexico, while others are asking Mexican manufacturers to scale up production with the promise of higher purchasing volumes in the world’s largest consumer market across the border.

There is also a move by US companies to shift final production back home to take advantage of tax relief measures, several of which place orders in Mexico for important components like semi-conductors.

Domestic factors drive investment and demand

Two internal factors are also expected to drive growth by bolstering domestic demand through consumption and investment.

The public budget for 2024 includes the largest real increase in public spending in ten years, most notably driving investment in public works to the south and southeast to complete the Dos Bocas oil refinery and Tren Maya megaproject.

In addition, the tight job market and a generous 20% rise in the minimum wage this year will fuel high pay increases in the private sector and feed through to increased consumer spending in domestic demand.