14/05/2024
The nearshoring trend to Mexico is driving the attraction of foreign companies from around the world, fostering an expansive economic landscape for the country in the foreseeable future.
At the same time, it also allows these businesses to take advantage of Mexico's trade agreements and seek entry into the United States market on favorable terms.
Many Asian companies are moving to Mexico to reach the US market with lower export taxes. This occurs because of the free trade agreement between the US, Canada, and Mexico. As a result, Mexico's market is seeing new companies entering due to the skilled workforce available in the country.
This has brought new players to Mexico's market because of the availability of a skilled workforce, reinforcing the competitiveness required for local companies to achieve success.
Authorities try to protect local producers in nearshoring to Mexico trend
Mexico is changing trade policies with countries that need agreements to stay competitive in the global market.
Consequently, Mexico recently announced a significant tariff increase for various imported articles, including metal-produced goods. Foreign companies in the country without a free trade agreement may face tariffs ranging from 5% to 50%. The specific tariff rate depends on the type of items being imported.
The Mexican Ministry of Economy made a temporary decision that has been valid since April 23rd to protect national industries from harmful trade practices. This decision aims to support the development of Mexican industries and the domestic market.
The Ministry of Economy announced the new rates for imported items, which are listed in a document that includes various products: • Steel products with a diameter of less than 14 millimeters will be subject to a 50 percent tariff. • Tires will have a 35% tariff. • The 'flux-cored' wire for arc welding of common metal will have a 25% tariff.
The main goal: to preserve nearshoring dynamics in Mexico
Mexico is not the first country to increase or impose tariffs on China; India is also doing so, and the European Union is considering restrictions for the Asian country.
In response to the decision taken by Mexican authorities, Carlos Palencia, the national director of Index (National Council of the Maquiladora and Export Manufacturing Industry), stated to Mexico Industry portal that the country’s action could be a move to prevent the United States from imposing tariffs on Mexico.
For Palencia, the imposition of these tariffs marks the beginning of a series of measures that may already be becoming clear on the part of the Mexican government toward China, which is influenced by the United States.
In this scenario, “Mexico would only be a stepping stone for China to reach the United States and compete with them locally now (what is in the Official Gazette of the Federation is related to this concern),” he added.
For Palencia, the imposition of these tariffs marks the beginning of a series of measures that may already be becoming clear on the part of the Mexican government towards China and influenced by the United States.
More than a protectionist action, it seeks to combat unfair practices
According to representatives of the Mexican Confederation of Industrial Chambers (Concamin), who explained their point of view regarding the tariffs to Forbes Mexico, the Mexican authorities’ decision is not driven by protectionism.
Alejandro Malagon Barragan, the confederation’s director, stated that the decision, effective since April 23rd, is a decisive step to combat unfair trade practices by Chinese companies.
By increasing the import tariffs for selected articles from countries without free trade agreements, Mexico aims to promote local production and protect the domestic industry.
Making imports more expensive encourages companies to relocate their operations to Mexico or nearby countries, particularly amidst the rising trend of nearshoring, where businesses seek to move production closer to their primary markets.
The temporary nature of the decision signals it's taken to give an immediate response to an urgent commercial issue. Temporary measures can relief or adjust market conditions quickly, but they do not necessarily reflect a long-term policy.
It could also signify that Mexican authorities are using this action as a negotiation tactic to improve its international trade relations.
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