APLA ’24: Mexico nearshoring critical as US-Mexico economies intertwined – Evonik exec

CARTAGENA, Colombia (ICIS)–Mexico’s nearshoring trend will continue, even with the prospect of changes with the incoming US Trump administration as the US and Mexico economies are growing more and more interconnected, said the head of Evonik’s Mexico business.

“Mexico is the 14th largest global economy, and an economy geared for exports – not only to North America but other regions,” said Martin Toscano, president of Evonik Mexico, at the Latin American Petrochemical and Chemical Association (APLA) Annual Meeting.

Mexico is the 9th largest exporter globally and becoming one step closer to the 3rd largest auto parts manufacturer. It is also the leading business partner to the US, he pointed out.

Currently over 80% of Mexico’s exports are to the US, totaling $455 billion in 2023. The US now imports more from Mexico than from China. The US in turn exported $324 billion of goods to Mexico, he noted.

Key Mexico exports to the US include transport equipment (including autos and parts), medical and scientific instruments, electronics, machinery, and rubber and plastic.

TRUMP IMPACT ON NEARSHORING

“Trump 47 (referring to the upcoming 47th US President) is not going to be that different from 45 (last Trump administration). US and Mexico interests go beyond rhetoric,” said Toscano.

“No region is an island – they rely on net inflows. The world is too interconnected to just switch off. Economies depend on exports but also imports,” he added, pointing out that the US is unlikely to reshore everything.

Nearshoring is natural for Mexico because of its proximity to the US and the USMCA (US-Mexico-Canada Agreement) free trade agreement (FTA). But nearshoring is also distributed across Latin America, with other countries such as Brazil and Argentina ready to play greater roles, he pointed out.

US President-Elect Trump has threatened companies – both in the US and abroad – that move production to Mexico to export to the US, with tariffs.

However, the US holds over 40% of total foreign direct investment (FDI) in Mexico, making it a major stakeholder in Mexico exports, he noted.

“The US has a very important role… but there is also a significant European presence. There is a continuing diversification of the investment base,” said Toscano.

Mexico also has FTAs with 23 countries – the 7th most of any country in the world – with access to over 60% of global GDP. This as well as increasing government investment in infrastructure and a growing middle class make it an attractive market for investment, he pointed out.

“All this investment in Mexico has generated greater well-being – better jobs and income. This means people start consuming more for basic needs – food, protein, personal care products, cleaning products and household items,” said Toscano.

The executive also sees a boost for US economy with the incoming Trump administration.

“Simplifying regulations can be good. It can turn to a negotiation point when USMCA sunsets [in 2026]. This can make Mexico adopt certain [simplified] regulatory elements,” said Toscano.

“With the Trump administration, Mexico has to take some topics seriously. Nearshoring is a window of opportunity, and if we don’t know how to do it, we will lose,” he added.

RULES OF ORIGIN, DEAL-BASED WORLD

At the APLA Annua Meeting, former head of Argentina’s central bank and current director of the Asia School of Business, Martin Redrado, said Mexico should be prepared for the US being much stricter on its “rules of origin”.

Under the USMCA rules of origin, exporters must show that a product has a certain minimum percentage of components from the region (US, Mexico, Canada) to avoid import duties.

Redrado said Latin American countries should now follow a transactional policy as we move from a “rule-based world to deal-based world”. This requires a transactional approach to negotiations.

The 44th APLA annual meeting takes place 18-21 November in Cartagena, Colombia.

Focus article by Joseph Chang

Thumbnail shows the flag of Mexico. Image by Shutterstock.