That’s a tall order. The U.S. is Mexico’s largest trading partner, and exports to the U.S. account for some 30 percent of Mexico’s gross domestic product. Since the signing of the North American Free Trade Agreement in 1994, manufacturers have structured supply chains across the continent around the expectation of free trade within its borders.
Foreign manufacturers have also seen the country as an attractive entry point into the U.S., offering both exemptions from import tariffs and a skilled, relatively low-cost labor force. After the signing of the U.S. Mexico Canada Agreement, or “NAFTA 2.0,” in 2020, Chinese investment in Mexico in particular began to surge. The Biden administration’s subsequent decision to prioritize sourcing in key sectors from Mexico and other free trade partners promised dividends not just for Mexican exporters but for other countries to boost investment in production there too.
The future of the USMCA remains in doubt, though, and the U.S. could demand strict limits on Chinese investment ahead of a scheduled review and potential renegotiation next year. The Mexican government’s newly enthusiastic embrace of industrial policy is thanks in part to the chaos of Trump’s trade policy, said development economist Amir Lebdioui, director of Oxford University’s Technology and Industrialisation for Development Centre, or TIDE. Alongside the Mexico City–based think tank FuturoLab, TIDE recently launched, in collaboration with the Mexican government, the Oxford-Mexico industrial policy Co-Lab.
Trump’s antics in recent months, Lebdioui told me, have forced economic policymakers there “to move from the passenger seat to the driver seat—they realized they have to be in control of where they want their economy to go, and they can’t just rely on the U.S. and the will of one man.” Like the Inflation Reduction Act and the CHIPS and Science Act, Plan Mexico involves considerable tax incentives for private companies to invest in research and development and advanced manufacturing. However, rather than relying almost exclusively on incentives for the private companies to invest in core sectors, as in the U.S., Plan Mexico puts the government in charge of a wide array of decisions as to where and how new building happens. That allows officials to coordinate across sectors so that developments in different fields can complement one another.
Take the Olinia project: While the ultimate aim is for those cars to run on batteries made in Mexico, using lithium extracted and processed in Mexico, those batteries will also provide backup power for solar and wind power added to Mexico’s electrical grid by the state-owned electricity provider, the Federal Electricity Commission, or CFE, which is in turn working with LitioMx—a state-owned lithium firm—to establish battery production, drawing on federally funded research.
