Mexico's Pivotal Role in North American Trade

Mexico is increasingly described by policy analysts as a pivotal state that is deeply integrated into North American production networks while also participating in coalitions associated with the Global South. This dual positioning reflects its role as a large Latin American economy that trades heavily with the United States but maintains diplomatic and economic links beyond the region.

According to analysis from the Center for Strategic and International Studies (CSIS), Mexico ranked as the world's twelfth largest economy in 2025, with gross domestic product above 1 trillion dollars and trade accounting for roughly 88 percent of economic activity.

Related CSIS research notes that U.S. exports to Mexico have more than doubled over the past fifteen years, making Mexico the fastest growing and most consistent U.S. export market since 2020. In August 2025 Mexico overtook Canada as the leading destination for U.S. exports, underscoring the scale of North American industrial integration.

Manufacturing supply chains in sectors such as autos and electronics rely on cross border production stages that link factories in both countries.

These patterns coincide with a significant rise in foreign direct investment. Research by Stiftung Wissenschaft und Politik (SWP) reports that Mexico attracted a record 36.06 billion dollars in foreign direct investment in 2023, reflecting investor interest in using the country as a production base for the North American market.

That inflow supports the narrative that nearshoring, or relocating production closer to end markets, is an important driver of recent capital commitments.

Key Strategic Assessment

Mexico is a top U.S. export market and one of the world's 12 largest economies with high trade openness.
Integrated supply chains and record 2023 FDI highlight nearshoring momentum, but only a modest share is directly tied to relocation projects.
Infrastructure deficits, security risks and rule-of-law concerns constrain Mexico's ability to capture long term gains.
A broad network of trade agreements and rising Chinese investment position Mexico as a pivotal actor in a more fragmented, multipolar trade system.
The 2026 USMCA joint review introduces negotiation risks, but analysts expect U.S.–Mexico economic interdependence to persist while becoming more transactional.

Economic Weight and North American Integration

CSIS describes Mexico's economic model as heavily trade oriented, with manufacturing exports central to growth and employment. Integration into U.S. and Canadian supply chains has been reinforced by the United States–Mexico–Canada Agreement (USMCA), which replaced the North American Free Trade Agreement.

This framework provides preferential market access and rules of origin that encourage firms to structure production across the three economies.

The CSIS study on trade flows highlights that Mexico has become a stable outlet for U.S. goods across multiple product categories since 2020. U.S. exports to Mexico have grown not only in volume but also in diversity, covering machinery, vehicles, agricultural products and intermediate inputs for manufacturing.

Integrated supply chains mean components may cross the border several times before final assembly, creating employment linkages on both sides.

SWP notes that the record foreign investment total in 2023 reflects both expansions by existing manufacturers and new projects seeking to serve the U.S. market. However, the same research stresses that announced nearshoring projects comprised only about 13 percent of overall foreign direct investment that year.

This indicates that while nearshoring is an important narrative, many inflows still relate to traditional investment patterns or sectors less directly tied to U.S. supply chain reconfiguration.

SWP also observes that nearshoring is gradually evolving into what is sometimes described as security shoring. Firms and governments increasingly prioritize locations that reduce exposure to geopolitical or supply risks. In this view, Mexico's proximity to U.S. consumers and its participation in USMCA make it a candidate for more resilient production networks.

At the same time, these dynamics raise expectations around regulatory stability and infrastructure performance that can be difficult to meet in practice.

Networks, Investment and a Multipolar Trade System

According to CSIS, Mexico participates in a wide network of trade agreements that includes USMCA, the Comprehensive and Progressive Agreement for Trans Pacific Partnership and the European Union–Mexico Trade Agreement. This network gives Mexico preferential access to more markets than the United States currently enjoys.

CSIS argues that this position allows Mexico to function as a pivotal state in the global trading system, connecting North American value chains with partners in Europe, Asia and Latin America.

The same CSIS analysis documents a rise in Chinese capital inflows to Mexico. Chinese foreign direct investment in the country increased from 38 million dollars in 2011 to 386 million dollars in 2021. An additional 12.6 billion dollars in new projects were announced in 2023.

These figures suggest that firms based in China view Mexico as a platform for serving the North American market under USMCA rules.

From a multipolar perspective, this pattern illustrates how Mexico can connect competing economic blocs without formally aligning with any single one beyond existing treaty commitments. Increased Chinese investment provides diversification and potential technology transfer, while deep U.S. and Canadian ties remain central for export demand.

This configuration creates both bargaining power and constraints, as policymakers must weigh U.S. security concerns about strategic sectors against the benefits of diversified capital sources.

Economic growth projections indicate that converting these structural advantages into faster expansion is not guaranteed. Citing forecasts from the International Monetary Fund and the Organisation for Economic Co operation and Development, SWP reports that Mexico's economy was expected to grow by about 1.5 percent in 2024, 1.3 percent in 2025 and 0.6 percent in 2026.

These modest rates highlight how structural bottlenecks can limit the impact of trade integration on overall growth.

Structural Constraints and Governance Challenges

SWP's 2025 assessment identifies several constraints that complicate Mexico's nearshoring prospects. The study points to deficits in energy and water supply that affect industrial zones, including electricity reliability and access to sufficient water for manufacturing and urban use.

These factors can delay project implementation or lead companies to reconsider the scale and location of planned facilities.

The same research highlights governance and security challenges. It notes concerns about opaque judicial reforms, limited law enforcement capacity and an unstable security situation in many regions. These conditions increase operational risk and can raise costs for firms that must invest in private security, compliance measures or additional insurance.

In SWP's analysis, these combined constraints help explain why formally defined nearshoring projects represented only about 13 percent of total foreign direct investment in 2023. This was the case despite strong rhetoric about relocation to Mexico.

Companies may expand existing operations or pursue smaller scale investments rather than large, greenfield manufacturing complexes that depend on reliable infrastructure and predictable rule of law.

Projected low to moderate growth rates from the IMF and OECD, as summarized by SWP, further underline the difficulty of translating Mexico's geostrategic position into rapid development. Without sustained improvements in basic services and legal certainty, trade openness and geographic advantages may generate only incremental gains.

This gap between potential and realized outcomes is central to how experts assess Mexico's role in a multipolar world.

SWOT: Mexico's Geostrategic Position

From a strengths perspective, Mexico benefits from immediate geographic proximity to the United States, compatible time zones for business operations and a large pool of industrial labor. SWP notes that these factors have made Mexico an attractive location for firms seeking to improve efficiency and reduce costs by locating production closer to U.S. consumers.

CSIS adds that Mexico's manufacturing base and its extensive network of trade agreements reinforce its role as a key hub in North American and global supply chains.

Weaknesses identified in the same body of research focus on security, governance and infrastructure. Persistent violence and limited law enforcement capacity create risks for logistics corridors and industrial clusters.

Deficits in energy generation, grid reliability and water availability add uncertainty for capital intensive projects that depend on stable long term operating conditions.

On the opportunities side, Mexico is positioned to benefit from global supply chain reconfiguration away from single country dependence. SWP argues that heightened concern about geopolitical and climate related disruptions is pushing corporations to diversify manufacturing locations.

North America is often viewed as a lower risk region relative to some parts of Asia. Mexico's participation in USMCA and other trade agreements gives it a legal framework to attract such diversification oriented investment.

Threats relate to the external policy environment and potential shifts in U.S. trade strategy. The upcoming USMCA joint review allows any party to seek changes to the agreement or to begin withdrawal procedures, introducing the risk of tariff shocks or regulatory uncertainty.

In addition, rising scrutiny in Washington of Chinese investment in strategic sectors could constrain Mexico's efforts to leverage diversified capital sources, especially in industries linked to advanced manufacturing or critical infrastructure.

USMCA Review and the Future of U.S.–Mexico Relations

The United States–Mexico–Canada Agreement includes a joint review mechanism scheduled for the first time on 1 July 2026. According to the Office of the United States Trade Representative (USTR), this process allows the parties to evaluate the agreement's performance and consider revisions or steps toward termination.

The design of the clause gives each government leverage by making long term continuation conditional on periodic political approval.

Reporting by Reuters in 2025 cites U.S. Trade Representative Jamieson Greer explaining that the review period was included so that the United States could revise, review or exit the agreement if needed. In the same interview, Greer indicated that President Trump could decide in 2026 to withdraw from USMCA or to pursue separate bilateral arrangements with Canada and Mexico.

These statements have drawn attention to the possibility that the review could become a venue for major renegotiation rather than a technical exercise.

At the same time, CSIS emphasizes how closely U.S. manufacturing employment is tied to demand within North America. Its analysis of trade flows notes that Mexico's emergence as the largest U.S. export market reflects deep interdependence across sectors such as autos, machinery and agriculture.

Disrupting these links would impose adjustment costs on firms and workers in all three USMCA economies. This is a key factor that shapes how policymakers weigh the risks and benefits of aggressive bargaining during the review.

Taken together, the sources suggest that U.S.–Mexico economic interdependence is likely to persist, even if the political management of the relationship becomes more transactional. Trade and investment ties rooted in integrated supply chains make a complete decoupling costly and complex.

However, the 2026 review could see market access issues linked more directly to discussions on security cooperation, migration policy and joint efforts against organized crime.

Mexico's strategic challenge is to use the USMCA review and broader shifts in global trade to reinforce its role as a stable production platform. This must be done while addressing structural weaknesses at home.

Improvements in energy and water infrastructure, judicial transparency and public security would strengthen its position as a nearshoring and security shoring destination. Outcomes in these areas, together with decisions taken in the 2026 review, will shape how Mexico navigates its relationship with the United States and its place in a more multipolar world.