The State of Nearshoring in Mexico, Canada, and the United States at the End of 2023
Nearshoring trends in Mexico, the United States, and Canada reflect significant shifts in global supply chain strategies, influenced by a combination of economic, political, and technological factors.
In Mexico, nearshoring is experiencing a notable surge. This growth is reflected in the consistent hikes in minimum wage, with an additional increase of 15% to 20% expected in 2024, which, while putting pressure on corporate profits, boosts consumer spending power. The automotive manufacturing sector, in particular, has attracted significant foreign direct investment, underlining its role as a key driver of US-Mexico trade growth, which remains steady in 2023. Companies relocating to Mexico are expected to make substantial investments in industrial spaces, with approximately $2.5 billion allocated for new industrial parks and an additional $10 billion for the automotive sector. Despite these developments, nearshoring hasn't yet led to a significant increase in foreign direct investment (FDI) in Mexico, as FDI levels remain similar to pre-pandemic levels. However, new investments in 2022 represented 48% of total FDI in Mexico, the highest since 2013. Overall, nearshoring has contributed to an FDI boom in Mexico, with the country receiving $32.2 billion in the first three quarters of 2023.
In the United States, the pandemic's impact on the global supply chain and the increasing investment in clean energy are prompting more renewable energy manufacturers to consider onshoring or nearshoring manufacturing facilities in the country. Domestic demand for clean energy is at an all-time high, and domestic production may help satisfy U.S. consumer demand for predictable delivery schedules and prices. Factors influencing this trend include the Inflation Reduction Act, which provides significant tax credits for renewable energy manufacturing, geopolitical instability, antidumping duties against solar panels, the Uyghur Forced Labor Act, and various considerations in site selection, local tax, labor costs, technology, and logistics.
In Canada, nearshoring is driving growth across North American markets, particularly in Mexico, and influencing the integration of North America’s air and railway networks. Geopolitical risks, U.S.-China trade conflicts, and COVID-19 lockdowns have highlighted the importance of de-risking supply chains through nearshoring. The ‘Made in the Americas’ approach is seen as greatly beneficial to USMCA partners, with Mexico emerging as the epicenter of nearshoring activities. The industrial real estate sector in Mexico, as a result of nearshoring, is experiencing a demand surge, driven by factors like the need to improve resiliency in value chains, the influence of USMCA, and geopolitical risks. Regional airports in Mexico are playing a key role in nearshoring, with direct flights from Canada and the U.S. to key Mexican cities enhancing air travel integration. Railroads in North America, as a backbone of the economy, are benefiting from and enabling nearshoring, with trade flow being essential for rail traffic. The construction, steel, and cement sectors are seeing significant growth due to nearshoring, with markets in both Mexico and the U.S. being sold out. Moreover, Environmental, Social, and Governance (ESG) considerations are becoming central to nearshoring and securing supply chains, highlighting the importance of sustainability in business operations.
These trends demonstrate a complex interplay of economic incentives, policy initiatives, and market dynamics reshaping the North American trade and manufacturing landscape in the context of nearshoring.
