Mexico will gain from regionalising global supply chains – if it can resist energy nationalism

“Current government efforts to reassert state control over energy and other natural resources threatens to curb the potential inflow of multinational operations.”

Mexico rivals China in its manufacturing exports to the US, with bilateral trade reaching some $600 billion each year, and specialising in advanced industrial supply chains such as autos and aerospace.

Current trends reshaping global supply chains lean largely in its favour, granting it the potential to capture more of the US and other markets. Rising logistics costs, time delays, and other uncertainty are leading many corporations to bring production closer to final consumers. Geopolitical fragmentation is encouraging strategic reshoring and supply chain regionalisation.

For those selling into the US market, Mexico is an obvious choice for relocating or locating at least part of their production chains: its geographic proximity lowers logistics costs and risks and its preferential trading access, reaffirmed by the US-Mexico-Canada Agreement, eliminates tariffs, many regulations, and provides investor guarantees and arbitration paths.

And three decades of continental production integration have built up cross-border supply chains across a number of commercial sectors, providing an attractive ecosystem of supplier networks and experiences to draw on.

However, current government efforts to reassert state control over energy and other natural resources threatens to curb the potential inflow of multinational operations and adds uncertainty for those already in place. Since coming into office, the López Obrador government has cancelled energy auctions, delayed or revoked permits and licenses, and closed existing privately managed energy operations, often on questionable grounds.

Despite the failure of its energy focused constitutional reform, the administration continues to use regulatory and other tools to expand the de facto control of its state-controlled enterprises over energy markets. For manufacturers, this shift threatens future access to affordable electricity, with demand already outstripping public sector investments in expanding supply.

It also derails Mexico’s green energy transition, as private investment and technologies were at the forefront of expanding Mexico’s wind, solar, and geothermal power generation. As Mexico’s energy matrix reverts to higher carbon emission fuels it will force corporations with climate pledges to reconsider the nation’s place in their global production footprint.