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Extractive summaries and key takeaways from the articles curated from TOP TEN BUSINESS MAGAZINES to promote informed business decision-making | Since September 2017 | Week 313 | September 8-14, 2023

Mexico’s Moment: The Biggest US Trading Partner Is No Longer China

By Maya Averbuch and Leda Alvim | Bloomberg Businessweek | September 12, 2023

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The new Cold War is a business opportunity, and Mexico looks better placed than almost any other country to seize it.

US-China tensions are rewiring global trade, as the US seeks to reduce supply-chain reliance on geopolitical rivals and also source imports from closer to home. Mexico appeals on both counts—which is one reason it’s just overtaken China as the biggest supplier of goods to the giant customer next door.

On top of resurgent exports, Mexico boasts the world’s strongest currency this year and one of the best-performing stock markets. Foreign direct investment is already up more than 40% in 2023, even before Tesla Inc. starts building a proposed $5 billion factory. Not since the signing of the North American Free Trade Agreement in the 1990s has the country held the kind of allure for investors that it has right now.

Yet Mexico has a history of missing what could have been its moments. Over the past three decades, even a trade deal with the world’s biggest economy—which, just like today’s wave of so-called “nearshoring,” brought plenty of foreign investment—couldn’t pull Mexico out of a rut.

Since 1994, the year Nafta took effect, growth has averaged about 2% a year, well below par for developing economies, and nowhere near enough to lift millions of Mexicans out of poverty. Turkey, Malaysia and Poland are just three examples of nations that were poorer than Mexico at the start of this century and are now substantially richer.

And there are plenty of obstacles, old and new, that could cut the current boom short.  The government of President Andrés Manuel López Obrador has repeatedly clashed with business interests as it seeks to bolster the state’s role in the economy. Mexican companies have been reluctant to borrow and make the investments that could help turn a growth spurt into something more enduring. And the country is up against fierce competition, from Vietnam and other nations, in the race to replace China as a supplier to the US.

What’s more, even the investments that Mexico is already getting are putting its infrastructure under growing strain, amid bottlenecks created by erratic power transmission, limited industrial space, and water scarcity.

3 key takeaways from the article

1. US-China tensions are rewiring global trade, as the US seeks to reduce supply-chain reliance on geopolitical rivals and also source imports from closer to home. Mexico appeals on both counts—which is one reason it’s just overtaken China as the biggest supplier of goods to the giant customer next door.
2. Yet Mexico has a history of missing what could have been its moments. 
3. And there are plenty of obstacles, old and new, that could cut the current boom short.  These include the current government  has repeatedly clashed with business interests as it seeks to bolster the state’s role in the economy. Mexican companies have been reluctant to borrow and make the investments that could help turn a growth spurt into something more enduring. And the country is up against fierce competition, from Vietnam and other nations, in the race to replace China as a supplier to the US.  And the investments that Mexico is already getting are putting its infrastructure under growing strain, amid bottlenecks created by erratic power transmission, limited industrial space, and water scarcity.

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Topics:  USA, China, Mexico