Mexico at a turning point: How tariff realignment can redefine North American trade

In a new international trade landscape driven by U.S. tariff policy, Mexico has the opportunity to consolidate its position as a privileged trade partner. Seizing the moment to deepen North American economic integration could position the USMCA as the largest regional trade bloc. To achieve this goal, all three member countries will have to develop coordinated strategies to enhance cooperation across supply chains and promote shared growth.

According to World Bank data, in 2024 the USMCA was the world’s second-largest trade agreement in terms of combined GDP, with a value of $25.8 trillion, while the Regional Comprehensive Economic Partnership (RCEP) currently holds the top position with an estimated $28.5 trillion.¹ Although the USMCA has maintained a steady growth trajectory in recent years, the current international trade context highlights the need for renewed strategic efforts that would allow North America’s trade agreement to become the world’s largest bloc, bringing long-term benefits to the three countries.

In 2025, following the launch of the United States trade policy, Mexico and Canada consolidated their positions as the countries with the lowest effective U.S. tariff rates.² This privileged relationship has strengthened their competitive position relative to other U.S. trading partners and has opened the door to deeper supply chain cooperation and higher incentives for nearshoring. At the same time, U.S. trade restrictions on Chinese firms have increased the urgency of securing alternative suppliers capable of reliably meeting domestic demand. This strengthens Mexico and Canada’s position as even stronger trade allies while potentially triggering a new investment cycle aimed at modernizing the region’s manufacturing capacity.

Deeper commercial integration between partners would bring shared benefits to all three economies by enabling the development of more productive and competitive supply chains and generating economic spillovers that could lead to sustained regional growth. Existing investment patterns already illustrate this potential. In 2022, U.S. foreign direct investment (FDI) stock in Mexico and Canada totaled $569 billion, a 9.5% increase from 2021. At the same time, Mexican and Canadian FDI in the United States reached $623.1 billion in 2022, marking an 8% increase compared with the previous year.³ These figures suggest that further regional integration could accelerate the pace of FDI growth not only from the United States, but also from Mexico and Canada.

There is another opportunity for strategic cooperation around certain key industries. The United States has made clear that strengthening domestic manufacturing capacity in strategic sectors is essential for national security. The Biden administration’s review of supply chain vulnerabilities (covering pharmaceuticals, batteries, semiconductors, critical minerals, and other key industries) aligns with several ongoing President Donald Trump’s Section 232 investigations, which grant the president authority to impose tariffs on imports deemed to threaten national security. This continuity suggests that the United States is likely to maintain a protectionist policy stance in these sectors in the coming years. This represents an important strategic opening for Mexico and Canada. The USMCA can be used as a platform to support the development of these industries within North America to strengthen regional resilience and reinforce their position as long-term reliable allies. Given the distinctive advantages that each country brings to the economic relationship, the United States would benefit from expanding regional cooperation to reduce its dependence on Asian markets and foster stronger industrial capabilities within the North American region.

What does Mexico need to do to seize the opportunity to become the United States’ substitute supplier for China?

One of the key objectives of Plan México is to increase domestic value in global value chains by 15% by 2030, particularly in six strategic sectors: automotive, aerospace, electronics, semiconductors, pharmaceuticals, and chemicals.⁴ By hitting this target, Mexico would strengthen its industrial base and enhance its competitiveness within North American supply chains. However, Mexico still faces the challenge of implementing the right strategies that would allow it to meet these objectives and ensure that public policy creates favorable investment conditions for these sectors while reinforcing Mexico’s position in North America’s value chains.

According to the Mexican Institute for Competitiveness (IMCO), meeting the goals of Plan México requires a strategy built on three pillars.⁵ First, the implementation of reforms regarding energy, administrative simplification, telecommunications, and other strategic areas must remain aligned with USMCA obligations. Second, Mexico must expand access to critical inputs such as steel, aluminum, glass, fibers, resins, and plastics. Third, in anticipation of the upcoming USMCA review, the Mexican government must set clear priorities aimed at expanding regional trade by leveraging the strategic sectors identified in Plan México.

Mexico is entering a new era of tariffs that is likely to persist. Even in a scenario in which future U.S. administrations decide to scale back or eliminate the current tariff regime, the long-term consequences of today’s trade policies will endure. This means that the ongoing restructuring of supply chains will shape the dynamics of global trade for years to come. It will be essential to understand the outcome of the USMCA review and determine whether the agreement can be advanced toward becoming the world’s leading trade bloc if this trade landscape is to be fully seized.

The global trading system is approaching a point of no return. Countries that adapt effectively to the emerging environment will be the ones that secure sustained growth in the decades to come. The question remains whether Mexico will be among them.