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Mexico’s $1.4 trillion economy makes it the second largest market in Latin America, and its geographical location provides it with a prime position for supply chain and trade advantages.
In 2022, international trade represented 88% of the Mexican GDP, but the world of international trade is changing.
Geopolitical and macroeconomic instability have forced many countries to rethink their trading strategy and countries are increasingly looking to shift to a nearshoring and de-risking trade strategy, and Mexico might stand to benefit from these developments.
Though the potential is there, it will still take a collaborative effort from all actors involved to take advantage of the unique position that Mexico finds itself in.
To learn more about Mexico’s potentially prosperous position in international trade, Trade Finance Global (TFG) spoke with Gerardo Gutierrez-Olvera Cabrales, Chairman of the Banking Commission at ICC Mexico and Executive Director, Head of Trade Finance and International Business at Banorte.
Mexico’s rising global trade profile
Mexico’s rise to become the leading exporter to the United States, surpassing China, marks a significant milestone in its economic narrative.
The country’s geographical proximity to the United States has always been a strategic advantage, facilitating more accessible and cost-effective logistics for cross-border trade. This advantage is amplified by the longstanding trade relationships and agreements that have laid a solid foundation for Mexico’s trade infrastructure and policies for over three decades.
The legacy of the North American Free Trade Agreement (NAFTA), now succeeded by the United States-Mexico-Canada Agreement (USMCA), has been instrumental in integrating Mexico’s economy with its North American counterparts.
Gutiérrez-Olvera said, “If you put together the US and Canada, they represent 85% of all Mexican exports and more than half of our imports. We are very much an integrated region – the three countries that are part of USMCA – and that is only strengthening and consolidating.”
Over the decades, these agreements have eliminated significant trade barriers and encouraged the development of robust manufacturing and export sectors within Mexico.
Manufacturing has come to represent a very substantial portion of Mexico’s exports, reflecting the country’s capability to competitively produce a wide range of goods – including automotive, electronics, medical supplies, and, increasingly, aerospace equipment.
Over the past few years, geopolitical and macroeconomic uncertainties have prompted many countries, particularly the United States, to reconsider their supply chain strategies, which have significantly benefited Mexico.
Gutierrez-Olvera said, “In Mexico, we are certainly feeling the sunny side of this major global trade reconfiguration. We see it in different stages, and the first stage of investment and preparation for nearshoring is already happening. Mexico made a record of foreign direct investment last year, much of it coming from the US, much of it destined for sectors and industries that are already fully integrated in the North American region.”
The country’s strategic location, favourable demographics and established trade agreements make it an attractive destination for companies looking to mitigate risks associated with longer supply chains and reliance on distant markets like China.
The influx of foreign capital supports the expansion and modernisation of Mexico’s industrial base and contributes to the development of its infrastructure, including logistics and transportation, which are critical for sustaining growth in exports.
Navigating the changing landscape of trade finance
Mexico’s financial landscape is also undergoing a significant transformation in response to global trade and economic policy shifts.
The country’s financial sector is navigating a complex environment marked by the end of an era of cheap money, as global and local rising interest rates and persistent inflation challenge traditional financing models.
Gutiérrez-Olvera said, “Many financial partners are beginning to look at the supply chain in a different way. There has been a movement away from the strict just-in-time delivery methodology, which was the flavour of the last two decades, to a just-in-case approach where the importance of not disrupting global supply chains is weighed more heavily than it used to.”
This shift emphasises the need for robustness and flexibility in the face of supply chain disruptions.
To aid in this, Mexico’s banks and financial institutions are also embracing digitalisation and the innovation of electronic trade documents as critical opportunities for streamlining operational processes and enhancing efficiency that facilitates financial inclusion
The adoption of electronic trade documents, in particular, could represent a significant advancement, offering the promise of more secure and faster transactions that can keep pace with the demands of modern global trade.
This digital shift, coupled with the strategic realignment of global supply chain finance, reflects a broader trend towards more agile, customer-centric, technology-driven solutions that can support international trade.
Through these efforts, Mexico is addressing the immediate challenges posed by the current economic environment and laying the groundwork for a more flexible, resilient, and efficient trade finance ecosystem.
Building a resilient trade ecosystem in Mexico
To bolster Mexico’s position as a leading force in global trade, the country must focus on improving logistics and expanding trade corridors, which are crucial for streamlining Mexico’s import and export processes.
Given the country’s significant reliance on land transportation, particularly for trade with the United States, enhancing road and rail infrastructure is pivotal but not the only area that would be beneficial.
Gutierrez-Olvera said, “60% of Mexican exports to the US go to three states: Texas, California and Michigan, which is related to the automotive industry. If we were able to develop logistics and seaports infrastructure on the Gulf of Mexico and South Mexico, we would be able to reach the east coast of the United States, where we currently do not sell a large amount of products. That wouldn’t be a game-changer for Mexico.”
Developing port infrastructure would help in diversifying Mexico’s export destinations and reducing logistical bottlenecks and is an area where public-private partnerships may be instrumental.
Collaborative efforts between the government, financial institutions, and the private sector are necessary to mobilise the resources and expertise required to upgrade infrastructure, comply with international trade agreements, and transition to greener energy sources.
Such partnerships can facilitate sharing risks and rewards, ensuring that projects are viable and aligned with national priorities.
As Mexico navigates the complexities of modern trade, its focus on comprehensive infrastructure development and digital advancements signals a proactive approach to securing its position as a key player on the world stage.
