Beyond reshoring: Nearshoring to Mexico

The time has come to think beyond reshoring to what comes next. Although the massive Trump tariffs were at least partially intended to drive manufacturing back to America, it just hasn’t happened. At the Reshoring Institute, we like to say that manufacturing went out like a tsunami, and it is coming back in raindrops. So if manufacturing isn’t coming back to America, what are companies doing now?

While some of the giant corporations such as Apple, Intel, Nvidia, GE, and Whirlpool, have all announced new investments in American facilities through capital investment and major automation, most small and medium-sized manufacturers simply cannot afford the huge investment in machinery or the minimum wage differential between low-cost country operations and the costs in the U.S. Instead, many of these smaller companies are exploring other options as they exit China.

In a study conducted by the Reshoring Institute, we found that 96% of the senior executives surveyed said they were “doing nothing” in terms of investing and hiring in the U.S. because the economy is just too unstable. However, nearly everyone reported that they were exploring other worldwide locations. At the top of the location list is Mexico.

Mexico continues to offer a compelling cost advantage for global manufacturers—in many cases, lower costs than China. Across the board, wage differentials for manufacturing labor—whether direct or indirect—can reach up to 80% compared to the U.S., even when factoring in the more generous benefits packages that Mexican workers expect. In Mexico, it’s not uncommon for companies to cover health care, child care, employee transportation, cafeteria plans, and provide attendance bonuses. These benefits aren’t optional for Mexican manufacturers. Benefits are essential to talent retention in a competitive employment market.

(Population, Unemployment, and Minimum Wage Chart – Northern Border – Research by the Reshoring Institute)

The Reshoring Institute recently researched wage comparisons between the U.S. and Mexico, and the differences are quite significant.  In the chart below, border cities such as San Diego have a legally required minimum wage of $17.25/hr compared with Tijuana, Mexico, just on the other side of the border, where the minimum wage is $2.59/hr. Other U.S. border cities, especially in Texas, have lower minimum wages of $7.25/hr—still significantly higher than the Mexican minimum wage.

The full report on wage rates and other statistics is available here: https://reshoringinstitute.org/current-topics/

Manufacturers with high labor content in their products will find Mexico to be a compelling and cost-effective place to locate operations. Proximity to U.S. markets, lower tariff rates, and the potential for duty-free entry under USMCA are all reasons to evaluate nearshoring. Coupled with Mexico’s new President, Claudia Scheinbaum’s, promise to build new industrial parks and her support for manufacturing, Mexico becomes a very attractive option.

SC
MR