60 Years of Nearshoring: A Historical Exploration of US Production Shifting to Mexico

Introduction

Today, nearshoring refers to the relocation of production facilities from China to North America, principally Mexico where low-cost labor and proximity to the U.S. market are important. This trend, though not new, has gained momentum in recent years as American and foreign producers seek lower production costs for labor-intensive components and finished products. Moving production facilities to other nations has been occurring in one form or another — initially in the form of “offshoring” from the U.S. — for most of the past 60 years. Mexico has historically been a preferred destination due to its proximity to the U.S. and its reliable, low-cost, and young workforce. 

This report offers a historical review of offshoring/nearshoring to Mexico since 1965. It examines the evolution of historical events and trade agreements that have made nearshoring possible, as well as the factors contributing to the uncertain outlook for foreign investment in Mexico’s near future. Understanding this historical context may help potential investors, policymakers, and other stakeholders better understand the current surge in Mexican nearshoring and its future prospects.

Drivers of Today’s Nearshoring Boom

The current trend of relocating factories and production facilities to North America is driven by a convergence of factors. The U.S.-China trade war is key among them, with the U.S. imposing penalty tariffs of around 25% on many goods directly imported from China. The U.S. government has also pressured enterprises to at least partially “decouple” from China in many critical sectors including the medical industry and the manufacturing of medicines, masks, and other hospital supplies. Full decoupling has also been encouraged for the production of electric vehicles (EVs), computer chips, and dual-use items (i.e., goods, software, and technology that can be used for both civilian and military applications). 

Supply chain vulnerability is another key consideration. For example, COVID-19 created unprecedented disruptions to global supply chains, forcing companies to find ways to diversify and fortify their supply networks. Other examples of supply chain interruptions include the Fukushima nuclear accident, recent water shortages in the Panama Canal, and Houthi attacks on shipping in the Red Sea. Due to these disruptions, companies from the U.S. and many other countries have had to move from “just in time” to “just in case” inventory management and supplier diversification. Moving operations to Mexico, which is considerably closer to the U.S. market compared to China, would help companies producing goods for the U.S. market avoid many of these disruptions. 

In addition to being closer to the U.S., companies are drawn to Mexico because of lower manufacturing costs and lower environmental impacts due to the avoidance of long ocean supply lines.[1] Lastly, the business and legal climate in China is growing increasingly hostile to U.S. businesses, making a move to Mexico all the more appealing. All of these factors have contributed to the recent nearshoring “boom” as more companies move production out of China and into Mexico. 

Why Mexico?

Mexico’s suitability as a production hub is underscored by several key factors. Foremost is its proximity to the U.S., facilitated by a 2,000-mile contiguous border. Additionally, more than 40 million Americans speak Spanish, which is important for managerial communication, particularly for small and medium-sized enterprises. Chinese fluency, on the other hand, is much less common among Americans. 

The U.S. interstate highway system, initiated by President Dwight D. Eisenhower, is also vitally important to Mexico as a route for delivering exported goods to the U.S. and, to a lesser extent, Canada.[2] For example, a container crossing the border at Nogales, Arizona, can swiftly traverse 60 miles via I-19 to I-10 West and then reach Los Angeles, California in approximately eight hours. Going the opposite direction, I-10 East can facilitate efficient transportation of goods into New Mexico, Texas, and even the East Coast in about two days.

Mexico’s other important advantages include a well-skilled labor force across much of the country, particularly in Nuevo León and other border states.[3] Despite current labor shortages in certain states and the absence of an extensive network of two-year community colleges, the workforce in Mexico is abundant, albeit often requiring additional training. And, despite congestion resulting from the cancellation of a project to build a new airport in Mexico City, Mexican factories are easily accessible from most parts of the U.S. within a few hours by air. This offers American managers distinct advantages in terms of time and time zone disparities compared to travel to China or Vietnam. Moreover, in Mexican states bordering the United States, deficiencies in electric power and natural gas production can often be mitigated by importing these commodities from the U.S., a trend that is likely to continue in the future.[4]

During much of the last 60 years, as discussed more fully below, Mexican laws and policies have encouraged foreign direct investment (FDI). However, at other times, including under current Mexican President Andrés Manuel López Obrador, Mexican policies have actively discouraged new investments and caused some existing enterprises to rethink their Mexican commitments. For example, navigating Mexico’s tedious bureaucracy has discouraged a number of companies from relocating to the region. Additionally, government corruption at all levels and high rates of crime, including drug-related violence and truck hijacking, have dampened foreign investment. Mexico’s inadequate educational facilities and deficient road, rail, and port infrastructure have not helped. Furthermore, the absence of a strict rule of law and regulatory uncertainty have caused companies to think twice about relocating to Mexico. And, perhaps most importantly, Mexico faces a worsening shortage of clean, reliable, and affordable electricity and a lack of natural gas, partly a result of López Obrador’s efforts to roll back the 2013 Mexican energy reforms and restore the effective monopolies in petroleum and electricity held by Pemex and the Comisión Federal de Electricidad (Federal Electricity Commission).[5]

The U.S. government, for its part, has generally facilitated U.S. offshoring to Mexico, though sometimes with a significant level of domestic political opposition. It has accomplished this through favorable customs laws and, for the past 30 years, duty-free entry of almost all goods originating under the North American Free Trade Agreement (NAFTA), recently replaced by the United States-Mexico-Canada Agreement (USMCA).[6] 

Still, some U.S. policies and Texas state laws have, in certain cases, conflicted with the objective of freer trade. For example, restrictions on immigration, crackdowns on drug trafficking, and calls for more adequate border infrastructure have diminished the prospects of less restricted trade with Mexico. Moreover, throughout the duration of NAFTA’s negotiation and implementation from 1991 to 2020, concerns over the perceived loss of jobs to Mexican immigrants threatened not only the agreement, but also the idea of freer trade.[7] Despite these factors, Mexico’s advantages appear to outweigh its disadvantages, with numerous companies continuing to shift their operations to the country.

1940s–60s: From the Bracero Program to Maquiladoras

In 1942, the U.S. government established the Bracero Program, which allowed tens of thousands of Mexican workers to be lawfully admitted into the U.S. to work in the fields of Texas, California, and Arizona. However, in 1964, President Lyndon B. Johnson terminated the program, primarily because of the low wages and mistreatment of Mexican workers by their U.S. employers, as well as the perceived adverse competitive effects for U.S. farm workers and the mechanization of agriculture for certain types of crops.[8] The result was a humanitarian crisis for both Mexico and the United States. Thousands of Mexican laborers had migrated from Mexico’s southern regions to the U.S. border, but they were left without gainful employment after the Bracero Program ended. 

In response to the crisis, Mexico — in consultation with the U.S. government — enacted the first “maquiladora” law to encourage U.S. manufacturers to establish assembly factories on the Mexican side of the border. The English translation of maquiladora is “miller of grain,” but it is now a common term for assembly-type factories in Mexico owned by foreign companies. Indeed, with the new law in place, foreign companies could own 100% of a Mexican factory rather than only 49%. They could also import materials, components, and necessary machinery without liability for Mexican customs duties. Furthermore, the law relaxed other establishment requirements, despite creating a complex bureaucratic process for setting up and monitoring the maquiladoras.[9] By the 1980s, “shelter” operators in Mexico also began offering facilitation services for foreign investors, particularly small- and medium-sized enterprises, allowing them to operate in Mexico more easily. These shelter operations remain an attraction to many foreign investors today.[10]

During this time, existing customs law in the United States (formerly TSUS 807, now HS 9802) also incentivized U.S. firms to conduct labor-intensive assembly operations in Mexico.[11] This was due to the fact that only the value added in Mexico was subject to duties when exporting the finished product to the U.S., making the manufacturing of products in Mexico cost effective. Additionally, components imported into Mexico from any source, including but not limited to the U.S., were free of Mexican tariffs if the finished product was exported. Suppose, for example, that a Mexican factory produced a product with a customs value of $100 when imported into the U.S., subject to a duty of 5%. The normal duty would be $5. However, if the Mexican value added was 20% — often just the labor component — and the legal requirements were satisfied, only the $20 worth of Mexican value added would be subject to duties, for a total of $1. This meant that duties on products produced in Mexico were often very minimal, encouraging many companies to move operations there.

However, the U.S. system still had its complications. For example, its customs laws applied only to “assembly” operations, not to “manufacturing,” a distinction that resulted in a flood of customs rulings and court challenges over the years. 

1975: The US Generalized System of Preferences Reduces Trade Barriers 

Beginning in 1975, the U.S. implemented a special trade program called the Generalized System of Preferences (GSP) for Mexico and dozens of other beneficiary developing countries (BDCs). Under this program, most manufactured products from these countries could enter the U.S. duty-free, provided they met the relaxed rules of origin, which usually required at least 35% content from the BDC. The BDC also had to meet other requirements, including a “substantial transformation” test (i.e., making the finished good “a new and different article of commerce”) that replaced the assembly-only requirements of tariff items 807/9208 (i.e., limiting the extent of the changes in the parts and components that are permitted). This was made possible by an exception to the Most Favored Nation (MFN) treatment — the tariffs applicable to U.S. imports from WTO member countries with which the U.S. does not have free trade agreements or other preferential arrangements — authorized by the General Agreement on Tariffs and Trade (GATT).

However, there were limitations to GSP. For example, it excluded a range of items, from steel to color televisions. It also contained other conditions such as cooperating with the U.S. on addressing drug trafficking and refraining from expropriating U.S. enterprises.[12] While there were further conditions to retaining BDC status, Mexico did not violate of any of them during the approximately 19 years it enjoyed BDC status under GSP.

GSP also required periodic reauthorization from Congress, which was and often is delayed.[13] Typically, duties collected on formerly eligible imports were waived retroactively, although paying the duties in the interim could be a burden, particularly for small- and medium-sized importers. As of 1992, Mexico was the leading BDC in terms of the aggregate value of U.S. imports covered by the program, amounting to $4.8 billion that year.[14] GSP, therefore, encouraged investment in factories on the Mexican side of the border, though once Mexico became a party to NAFTA, it was no longer eligible for GSP. However, in most instances where a good entered the U.S. duty-free under GSP, it also entered duty-free under NAFTA, assuming it met the NAFTA rules of origin.[15]

1986: Mexico Accedes to the GATT, Paving Way for Nearshoring

In 1986, Mexico became a party to the GATT, which required reducing tariffs and other trade barriers, including those related to agriculture.[16] Soon afterward, Mexico initiated a significant liberalizing of the rules applicable to foreign investment, making it easier for foreign firms to operate in Mexico.[17] At a time when many U.S. enterprises were having difficulty competing with imports from South Korea and Taiwan — where labor costs were low — these changes encouraged more U.S. companies, particularly those producing consumer electronics and other labor-intensive goods, to take advantage of Mexico’s low labor costs.[18] Thus many Korean, Taiwanese, and Japanese electronics enterprises began investing in Mexico before 1990.[19] They did this partly for the convenience of shorter supply chains, but also because they wanted to avoid U.S. trade restrictions on products such as color televisions, which had been in force in one form or another since the late 1970s.[20] This process of moving production from Korea, Taiwan, and Japan to Mexico is one of the earliest examples of “nearshoring” as the term is used today.

An example of a company that made this move in 1990 was Daewoo Electronics, one of three large Korean color TV producers at the time (along with Lucky Goldstar and Samsung). Daewoo built factories for the assembly of color televisions, video cassette recorders, and personal computers in San Luis del Río Colorado, Sonora, about 30 miles south of Yuma, Arizona. Its factories represented an investment of roughly $20 million, and, at its peak, Daewoo employed some 3,000 Mexican workers who arrived from central Sonora in a fleet of buses operated by the company. Most of the components for their products were imported from Korea or elsewhere in Asia, typically in bond via the ports of Los Angeles and Long Beach, California.[21] However, when the NAFTA rules of origin required color picture tubes to originate in North America in order for the TVs to enter the U.S. duty-free (instead of having to pay the U.S. MFN 5% duty), Daewoo invested at least $180 million in a color picture tube factory nearby in Mexicali, Baja California. This factory reportedly employed another 3,000 Mexican workers. [22] 

Daewoo’s practices were replicated elsewhere in the border zone by many other Asian TV producers and by several U.S. and European consumer electronics giants, including Zenith and Philips.[23] Today, some products are still made in Mexico under the Daewoo electronics brand — but not TVs.[24]

1980s: Antecedents to NAFTA

In 1988, the U.S.-Canada Free Trade Agreement (FTA), the second U.S. FTA after the one with Israel, entered into force.[25] The effect on U.S.-Canadian trade was not lost on Mexico, and in 1990, Mexican President Raúl Salinas urged the United States to conclude a similar FTA with Mexico. President George H.W. Bush agreed. Negotiations took place in 1991 and 1992, with Canada deciding to participate as well.[26] While the George H.W. Bush administration began and concluded the negotiations, the agreement was accepted by then presidential candidate Bill Clinton with the proviso that separate agreements relating to labor rights and environmental protection would be concluded and submitted to Congress as a package.[27] These supplemental agreements were concluded in May 1992 and entered into force with NAFTA in January 1994. Anecdotal evidence suggests that once NAFTA was signed in 1992, some investors decided to move forward without waiting for it to officially enter into force.[28] 

1990s: Mexican Foreign Investment Flourishes Under NAFTA

NAFTA provided an additional incentive to U.S. and other foreign-owned firms that exported products to the U.S. from Mexico. Instead of the unilateral nature of GSP, subject to the whims of Congress, NAFTA was a bilateral agreement, with no expiration date (although former President Donald Trump did threaten to terminate it but never actually did so).[29] For goods that met NAFTA’s complex rules of origin, which were different and usually more demanding than those under GSP, NAFTA offered a more stable and long-term path to duty-free access for goods exported from Mexico into the United States. 

It is thus not surprising that trade between the U.S. and Mexico flourished under NAFTA. For instance, from 1993 to 2019, trade between the two countries surged from $91.2 billion to approximately $564.7 billion.[30] Additionally, annual foreign direct investment (FDI) increased significantly over this period, from approximately $4.39 billion to $29.9 billion.[31] However, it’s worth noting that these figures might have increased even more if Mexico had taken action prior to 2010 to reduce the risks posed by Chinese competition. This could have involved simplifying its import duty structure and customs procedures, and reducing tariffs on imported parts and components.[32]

NAFTA was also critically important because of the additional protections for U.S. and Canadian investors required by the agreement.[33] Of particular importance was the Mexican Foreign Investment Law of 1993, which was largely incorporated into NAFTA when it went into effect in 1994. The law eliminated complex government approval requirements for foreign investments of $150 million or less, although registration with the foreign ministry was still required. It also permitted direct ownership of Mexican land and facilities used for commercial purposes, whether located in the border zones or elsewhere.[34] This was done partly to encourage foreign investments in the interior of Mexico and partly to reduce the migration of workers to border cities such as Ciudad Juárez, Mexicali, and Tijuana, which were overwhelmed by the demand for clean water, sewage disposal, and housing.[35] Since these protections were incorporated into NAFTA, they could not be unilaterally withdrawn by a subsequent Mexican government.[36] Mexico also accepted obligations to significantly improve its protection of intellectual property, and for the first time, agreed to submit most disputes with foreign investors to binding arbitration.[37] NAFTA therefore encouraged not only more foreign investment in Mexico, but also more open trade. 

2001–18: Early Offshoring to China Eventually Replaced With Nearshoring to Mexico

In 2001, Mexico, along with other World Trade Organization members including the U.S., decided to accept China as a WTO member. In retrospect, this was arguably as damaging to Mexico as it was to the United States. When China was accepted into the WTO, Mexico, like the U.S., was flooded with inexpensive Chinese goods. Beginning around 1987, more than 3,000 tariff items affecting Chinese imports were subject to Mexican antidumping duties until most were removed in 2008. These duties were imposed through a summary administrative process and could sometimes soar to over 1000%.[38] 

More damaging to Mexican exports and workers was a period when U.S. and other production was offshored to China, beginning around 2001. However, changes in the Mexican tax regime, appreciation of the peso, and the reduction in some tariff benefits under NAFTA also hurt the Mexican economy and workforce.[39] At the time, lower Chinese labor costs and production efficiencies, often with the addition of Chinese government subsidies, more than made up for the shipping costs of the goods to the United States and the payment of U.S. MFN duties. In particular, beginning in 2001, Mexico could no longer remit the Mexican duties on imported parts and components to their Mexican producers when the finished goods were exported to the U.S., but China was under no such constraints.[40] Mexico eventually reduced its MFN duties in 2010, including those on parts and components, to an average of around 6%. In retrospect, this should have taken place in 2001 instead of nine years later, as noted earlier.

Fortunately for Mexico, the Chinese production cost advantages began to decline substantially around 2012, even though parts and components for many sectors were only available in China. From 2005 to 2016, manufacturing wages in China tripled to about $3.60 per hour, while Mexican wages dropped to $2.10.[41] Energy and other costs in China began to increase significantly, productivity declined, and long shipping costs and times became a more significant factor for some producers. 

By 2013, it was evident to some observers that Chairman Xi Jinping and the Chinese Communist Party were more interested in “security” and the eradication of dissent than in continuing to maintain a favorable investment climate.[42] Thus, some businesses began to return to Mexico. However, it is difficult to gauge whether or not the adverse investment climate in Mexico, which began with López Obrador’s presidency in late 2018, has slowed the return process and encouraged some producers in China to relocate to Vietnam or elsewhere in Asia instead of to Mexico. 

2018–Present: Uncertainty Abounds Under López Obrador

One can only guess what would have happened to FDI levels in Mexico if COVID-19 and President Joe Biden’s efforts to decouple the U.S. economy from China had not occurred. Despite the once-in-a-generation confluence of factors noted above, FDI in Mexico apparently has not increased significantly on an annual basis since 2020, remaining at around $30–$35 billion annually.[43] Proportionally, Mexico’s attraction of FDI is well below Brazil even when adjusted for population differences. Some analysts argue that up to 93% of FDI is by existing Mexican enterprises rather than “new” investors in Mexico.[44] 

There seems little reason to believe that Mexico’s FDI levels in 2024 will increase substantially. Rather, the uncertainties regarding the business-related policies of López-Obrador's successor — probably the Morena candidate Claudia Sheinbaum — may encourage some potential investors to take a “wait and see” attitude. Or worse, they may decide that nearshoring to Mexico is not worth the labor-cost savings over reshoring to the U.S., particularly in sectors where robots and other automation can replace workers. For example, due to the provision of massive U.S. federal subsidies for the production of electric vehicles (EVs), EV batteries, and chips under the Biden administration’s industrial policies, many EV manufacturers may reshore their operations to the U.S.[45] U.S. state subsidies are also being offered to attract EV factories and EV battery plants.[46] 

Additionally, the recent political drama involving Nuevo León Governor Samuel García’s short-lived bid for the presidency and his attempt to reclaim the governorship may have raised some concerns about the investment climate in the state, to no one’s obvious benefit.[47] Uncertainties such as these may limit the “nearshoring” boom, but much remains to be determined as events unfold not only in Mexico, but also in the U.S. and China.

Conclusion

For most of the past 60 years, with limited exceptions, Mexico and the U.S. have cooperated to pursue mutual benefits, such as creating jobs, transferring technology, and attracting investment for Mexico, while also helping U.S. industries compete with those in Asia and Europe through access to lower-cost labor. However, for this partnership — and the process of nearshoring — to continue thriving, significant changes are needed in Mexico’s current investment climate. It is also crucial to ensure both foreign and domestic enterprises have access to reliable sources of clean electric energy to continue their operations. 

Moreover, the United States must refrain from taking trade-related immigration actions that could significantly undermine the advantages of Mexican production for export to the U.S. An example of this is the December 2023 decision by the Biden administration to close major rail routes from Mexico into the United States.[48] This decision  could have seriously injured the U.S.-Mexico trade partnership had it not been promptly rescinded. Despite this, hopefully both governments will recognize and build upon their mutually beneficial relationship in 2024 and beyond rather than succumbing to the strong protectionist trends that exist today in both countries. Whether this is a reasonable goal or a pipe dream remains to be seen.   

Notes

[1] David A. Gantz, “Will New Chinese Investment in Mexico Benefit North America?” (Houston: Rice University’s Baker Institute for Public Policy, March 23, 2023), https://doi.org/10.25613/RQD0-KA34. 

[2] U.S. Department of Transportation Federal Highway Administration, “Highway System: 50th Anniversary,” February 22, 2022, https://www.fhwa.dot.gov/interstate/history.cfm. 

[3] “Study Puts Mexico’s Skilled Labor Force in Global Top 10,” Co-Production International, April 21, 2023, https://www.linkedin.com/pulse/study-puts-mexicos-skilled-labor-force-global/.

[4] “Mexico is among the largest natural gas importers in the world. But within this group it stands apart for meeting most of its natural gas demand (69 percent in 2022) through a sole source: piped gas from the United States. Mexico’s reliance on US gas has grown steadily over the past decade. Today, some 6–7 billion cubic feet per day (Bcf/d) of gas (62–72 billion cubic meters per year) flows across the border. As Mexico attempts to boost its economy and shore up its power sector, as well as build out its LNG export capacity based on US gas production growth, this reliance will likely grow stronger in the years ahead” (Ira Joseph and Diego Rivera Rivota, “Lucrative Reward or Mounting Risk? Mexico’s Growing Reliance on US Gas,” Center on Global Energy Policy, October 24, 2023, https://www.energypolicy.columbia.edu/publications/lucrative-reward-or-mounting-risk-mexicos-growing-reliance-on-us-gas/).

[5] Stefanie Eschenbacher, “Mexico President’s Ex-Finance Minister Slams Government Energy Policies,” Reuters, October 27, 2023, https://www.reuters.com/world/americas/mexico-presidents-ex-finance-minister-slams-government-energy-policies-2023-10-27/. See also “Application of Tenaska Power Services for Renewal of Authorization to Transport Electric Energy to Mexico,” McDermott Will & Emery, Docket No. EA-431-A, November 3, 2021, https://www.energy.gov/sites/default/files/2022-02/Application%20for%20Electricity%20Export%20Authorization%20to%20Mexico%20%28EA-431-A%29.pdf.

[6] The North American Free Trade Agreement went into force January 1, 1994 and was terminated July 1, 2020 (North American Free Trade Agreement [NAFTA], Can.-Mex.-U.S., December 17, 1992, 32 I.L.M 289 [1993], https://www.italaw.com/sites/default/files/laws/italaw6187%2814%29.pdf). The United States-Mexico-Canada Agreement went into force July 1, 2020 (The United States-Mexico-Canada Agreement [USMCA], U.S.-Mex.-Can., agreed to October 1, 2018, https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement/agreement-between). 

[7] For example, Ross Perot, a third-party presidential candidate in 1993, accused NAFTA of creating a “giant sucking sound” resulting from the jobs that would be lost to Mexico (Eduardo Porter, “Ross Perot’s Warning of a ‘Giant Sucking Sound’ on NAFTA Echoes Today,” New York Times, July 9, 2019, https://www.nytimes.com/2019/07/09/business/economy/ross-perot-nafta-trade.html).

[8] Philip Martin, “Mexican Braceros and US Farm Workers,” Wilson Center, July 10, 2020, https://5g.wilsoncenter.org/article/mexican-braceros-and-us-farm-workers.

[9] “Frequently Asked Questions (FAQs) and Answers about Maquiladoras,” Carnegie Mellon University, Facts Document #8313, 1997–8, https://www.andrew.cmu.edu/course/80-241/guided_inquiries/articles/maq_faqs.html.

[10] “Shelter Companies in Mexico: A Complete Guide,” Cross Border Freight, January 21, 2020, https://mexicocrossborderfreight.com/shelter-companies-in-mexico-a-complete-guide/.

[11] U.S. Customs and Border Protection (CBP), “Subchapter 9802 HTS Provisions and Notes,” October 13, 2016, https://www.cbp.gov/trade/trade-community/outreach-programs/trade-agreements/nafta/repairs-alterations/subchpt-9802.

[12] For a comprehensive analysis of the Generalized System of Preferences (GSP) , see Liana Wong, “Generalized System of Preferences,” Congressional Research Service, January 13, 2022, https://crsreports.congress.gov/product/pdf/IF/IF11232.

[13] Most recently, the GSP expired on December 31, 2020, and has not been renewed as of December 31, 2023.

[14] U.S. General Accounting Office (GAO), International Trade: Assessment of the Generalized System of Preferences Program (Washington, DC: GAO, 1994), https://www.gao.gov/assets/ggd-95-9.pdf.

[15] “President Clinton terminated the designation of Mexico as a beneficiary developing country for purposes of the Generalized System of Preferences (GSP), effective January 1, 1994. Goods of Mexico entered on or after January 1, 1994 must meet the NAFTA rules of origin to qualify for reduced rates of duty; if they do not, they are dutiable at the MFN rate” (“GSP/GPT/MFN,” U.S. Customs and Border Protection, last modified March 6, 2024, https://www.cbp.gov/trade/nafta/guide-customs-procedures/effect-nafta/en-gsp).

[16] U.S. Department of Agriculture (USDA), “Mexico: Trade and FDI,” Economic Research Service, March 14, 2023, https://www.ers.usda.gov/topics/international-markets-u-s-trade/countries-regions/usmca-canada-mexico/mexico-trade-fdi/. 

[17] This article offers a discussion of the 1989 regulations to the 1973 Foreign Investment Law, liberalizing investment restrictions in Mexico (Lawrence E. Koslow, “Mexican Foreign Investment Laws: An Overview,” William Mitchell Law Review 18, no. 2 (1992), https://open.mitchellhamline.edu/wmlr/vol18/iss2/5).

[18] This article discusses, inter alia, the growth of the industry in Mexico including the failure to develop parts and components suppliers (Nichola Lowe and Marti Kenney, “To Create an Industry: The Growth of Consumer Electronics Manufacturing in Mexico and Taiwan,” Science, Technology and Society 3, no. 1 (1998), https://kenney.faculty.ucdavis.edu/wp-content/uploads/sites/332/2018/03/to-create-an-industry.pdf).

[19] “Thanks to companies like Sanyo, Sony, Hitachi Ltd., Matsushita Electronic Industrial Company and the South Korean firm Samsung Electronics Company, Tijuana has quietly become the TV assembly capital of the world. According to U.S. government estimates, 70 percent of all televisions sold in the United States are now made here” (William Branigin, “The Assembly Lines South of the Border,” Washington Post, July 31, 1990, https://www.washingtonpost.com/archive/business/1990/07/31/the-assembly-lines-south-of-the-border/d8ef413b-fe9c-4f5f-8436-764c82ff8dcc/).

[20] Clyde H. Farnsworth, “U.S. Urged to Keep Import Curbs on Color TV Sets,” New York Times, December 18, 1979, https://www.nytimes.com/1979/12/18/archives/us-urged-to-keep-import-curbs-on-color-tv-sets-on-endangered.html.

[21] Except as otherwise noted, these data are approximate and based on personal experience; the writer represented Daewoo Electronics on U.S. trade and customs matters relating to color TVs from 1984–99, but few detailed records still exist. 

[22] Chris Kraul, “Daewoo to Build $180 Million Picture Tube Plant in Mexico,” Los Angeles Times, December 14, 1995, https://www.latimes.com/archives/la-xpm-1995-12-14-fi-13908-story.html.

[23] Lowe and Kenney.

[24] “Daewoo Electronics Home Appliance de Mexico SA de CV,” Bloomberg, 2023, https://www.bloomberg.com/profile/company/6140575Z:MM.

[25] The U.S.-Canada Free Trade Agreement went into force on January 1, 1989, but was superseded by NAFTA on January 1, 1994 (U.S.-Canada Free Trade Agreement [FTA], U.S.-Can., January 2, 1988, 27 I.L.M 281 [1988], https://www.international.gc.ca/trade-commerce/assets/pdfs/agreements-accords/cusfta-e.pdf).

[26] Apparently, Canadian Prime Minister Brian Mulroney was motivated by the concern that Mexico would negotiate a better deal than Canada was able to achieve only a few years earlier unless Canada had a hand in shaping the outcome. See Laura Macdonald, “Canada and NAFTA,” The Canadian Encyclopedia, March 29, 2017, https://www.thecanadianencyclopedia.ca/en/article/north-american-free-trade-agreement-nafta. 

[27] North American Agreement on Labor Cooperation, December 15, 1992, https://www.worldtradelaw.net/document.php?id=nafta/naalc.pdf&mode=download; North American Agreement on Environmental Cooperation, December 15, 1992, https://ustr.gov/sites/default/files/naaec.pdf. 

[28] Based on author's conversations with potential investors in Arizona and their law firms in 1993.

[29] NAFTA; Ashley Parker et al., “‘I Was All Set to Terminate’: Inside Trump’s Sudden Shift on NAFTA,” Washington Post, April 27, 2017, https://www.washingtonpost.com/politics/i-was-all-set-to-terminate-inside-trumps-sudden-shift-on-nafta/2017/04/27/0452a3fa-2b65-11e7-b605-33413c691853_story.html.

[30] “Trade Summary of Mexico for 1993,” World Integrated Trade Solutions, accessed December 11, 2023, https://wits.worldbank.org/CountryProfile/en/Country/MEX/Year/1993/Summarytext; “Trade Summary of Mexico for 2019,” World Integrated Trade Solutions, accessed December 11, 2023, https://wits.worldbank.org/CountryProfile/en/Country/MEX/Year/2019/Summarytext.

[31] Foreign direct investment (FDI) under NAFTA at $37.8 billion — likely reflecting anticipation of the USMCA (“Mexico Direct Foreign Investment 1970–2023,” MacroTrends, 2023, https://www.macrotrends.net/countries/MEX/mexico/foreign-direct-investment).

[32] “Mexico has also adopted measures to simplify customs procedures and reduce import costs. Such measures include the elimination in 2008 of certain import requirements and the creation of a single window for trade, which became fully operational in September 2012. However, and despite these efforts, there is scope to reduce the incidence of non-tariff border measures, particularly sanitary and phytosanitary measures.” (World Trade Organization [WTO], “Mexico Trade Policy Review,” WT/PR/S/279, July 10, 2013, https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=q:/WT/TPR/S279R1.pdf&Open=True). 

[33] Among them were “Chapter 11,” providing for binding international arbitration of investment disputes, and “Chapter 17,” increasing protections for intellectual property.

[34] Mexico: Foreign Investment Law (1993), UNCTAD Compendium of Investment Laws, 1993, https://investmentpolicy.unctad.org/investment-laws/laws/136/investment-law. 

[35] Diana M. Liverman et al., “Environmental Issues Along the U.S. Mexico Border. Drivers of Changes and the Response of Citizens and Institutions,” Climate Assessment for the Southwest 24 (1999): 607–43, https://doi.org/10.1146/annurev.energy.24.1.607.    

[36] NAFTA, “Annex I — Mexico”; NAFTA, “Chapter 11,” https://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/nafta-alena/fta-ale/index.aspx?lang=eng. 

[37] NAFTA, “Chapter 17” and “Chapter 11,” respectively.

[38] Once the WTO antidumping agreement became effective in 1995, Mexico could no longer continue these antidumping orders, and most were withdrawn in 2008. See Adrian Vazquez Benitez and Horacio Lopez-Portillo, “Anti-Dumping Duty Agreement Marks New Dawn for Trade with China,” Lexology, 2008, https://www.lexology.com/commentary/international-trade/mexico/vzquez-tercero-y-asociados/anti-dumping-duty-agreement-marks-new-dawn-for-trade-with-china.

[39] GAO, International Trade: Mexico’s Maquiladora Decline Affects U.S.-Mexico Border Communities and Trade; Recovery Depends on Part on Mexico’s Actions (Washington, DC: GAO, 2003), https://www.gao.gov/assets/gao-03-891.pdf.

[40] “Article 303” and “Annex 303.7” prohibited rebates of Mexican duties on third-country imported components as of January 1, 2001.

[41] “A Decade of Rising Manufacturing Wages in China,” TECMA, 2018, https://www.tecma.com/manufacturing-wages-in-china/; NAFTA, art. 303.

[42] Andrew Latham, “How Xi Jinping’s Obsession with Security Derailed China’s Rise,” The Hill, October 25, 2023, https://thehill.com/opinion/international/4275496-how-xi-jinpings-obsession-with-security-derailed-chinas-rise/.

[43] FDI dates vary somewhat depending on the source. The United Nations Conference on Trade and Development date indicates FDI flows of $28.2 billion in 2020, $31.5 billion in 2021, and $35.3 billion in 2022. This source reports that 40.6% was in manufacturing, 23.2% in financial and insurance services, and the rest in transport, wholesale, and retail trade, mining and quarrying, and communication (“Mexico: Foreign Investment,” Santander Trade Markets, December 2023, https://santandertrade.com/en/portal/establish-overseas/mexico/foreign-investment). Mexican government data for the first quarter of 2023 reports $18.6 billion (Rupert Hutler, “Foreign Direct Investment in Mexico: A Look at 2023 and Beyond,” Von Wobeser and Sierra, October 30, 2023, https://mexicobusiness.news/professional-services/news/foreign-direct-investment-mexico-look-2023-and-beyond).

[44] Zenyazen Flores, “Mexico Sees Tepid Rise in New Foreign Investment Despite Nearshoring Boom,” Bloomberg Linea, August 10, 2023, https://www.bloomberglinea.com/english/mexico-sees-tepid-rise-in-new-foreign-investments-despite-nearshoring-boom/.

[45] U.S. Senate, “Summary: The Inflation Reduction Act of 2022,” accessed December 22, 2023, https://www.democrats.senate.gov/imo/media/doc/inflation_reduction_act_one_page_summary.pdf; The White House, “Fact Sheet: Chips and Science Act will Lower Costs, Create Jobs, Strengthen Supply Chains, and Counter China,” August 9, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/09/fact-sheet-chips-and-science-act-will-lower-costs-create-jobs-strengthen-supply-chains-and-counter-china/.

[46] Marc Levy, “‘War of the States’: EV, Chip Makers Lavished with Subsidies,” Associated Press, April 1, 2023, https://apnews.com/article/microchip-electric-vehicles-battery-semiconductor-states-subsidies-3ac5f11cdbf020e996f6bc8f92bd2bfd.

[47] “Mexico’s Samuel Garcia Pulls Out of 2024 Presidential Race,” Reuters, December 2, 2023, https://www.reuters.com/world/americas/mexicos-samuel-garcia-pulls-out-2024-presidential-race-2023-12-02/.

[48] Valerie Gonzalez, “Two Railroad Crossings are Temporarily Closed in Texas. Will there be a Significant Impact on Trade?” Associated Press, December 21, 2023, https://apnews.com/article/immigration-rail-crossings-closed-texas-d20973001fa607f228f89059b60159d9.

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