What will really kill nearshoring in Mexico

A Trump shakeup might actually end up being beneficial.

“You screw us and we’ll screw you.” There’s a whiff of the Victorian in Donald Trump’s “very simple” understanding of the global political economy. His message was aimed at Chinese companies setting up shop in Mexico to make the most of the trade benefits enshrined in the US-Mexico-Canada Trade Agreement (USMCA). 

The US-China trade war now threatens to land in Mexico and Trump has said he’d slap a 100% tariff on Chinese cars manufactured there. The peso—recently the world’s best performing major currency—fell 2.5% vs the dollar the day after his speech.

So is this it? Will previously nearshoring-crazed investors now be getting cold feet about Mexico?

As with everything, things aren’t as simple as politicians would have us think. Trump’s statements (and actions if reelected) certainly worry investors. So too do the flurry of reports about the opening of a new front for the US-China commercial standoff. However, most of these takes misinterpret the nature of the Chinese presence south of the Río Grande. They also underestimate the hidden advantages inherent in Mexico’s economy—while also ignoring the more worrying weaknesses hidden in plain sight.

Each of these factors bear uncomfortable truths that are likely to upset people of all political stripes: Trump is wrong about the simplicity of China’s aims in Mexico—its companies aren’t just setting up to “screw” the US. But he is right that a good part of the products entering Mexico from China can hurt the North American economy—including Mexico’s.

Rather than a kneejerk anti-Trump reaction, Mexico could benefit from playing its cards right as yet another USMCA renegotiation looms right as the US-China storm hit its shores. More crucially, the Mexican government should start setting things right home. For too long has the country laid on its nearshoring laurels, expecting that all will be fine.

Change is afoot.