News / Mexico's nearshoring juggernaut comes to a halt as FDI levels crash on tariffs

© wael alreweie

Mexico’s allure as a nearshoring magnet keeps wobbling, tossed by geopolitical tensions and relations with its northern neighbour as well as from domestic challenges, not least in the logistics arena. Foreign investment has slowed and uncertainty over US tariffs continues to hold back new developments.

Earlier this month the Mexican government caved in to pressure from Washington and restored traffic rights to US passenger airlines to the capital’s congested Benito Juarez airport (AICM) after the US Department of Transportation cut 13 current or planned cross-border routes of Mexican airlines. Those traffic rights had been rescinded when flight volume to AICM was cut through a forced exit of all freighter flights to Felipe Angeles airport and a reduction of landing slots at AICM.

While the return of those slots to US passenger airlines mollified Washington, the erratic policies of the US administration this year and threats of further measures affecting trade flows between the two countries suggest more disruptions lie ahead, which is affecting investment in Mexico and cross-border traffic flows. The US administration announced a 25% tariff on heavy trucks and has floated the idea of a 30% blanket tariff on goods entering the country from Mexico.

Already US tariffs have had serious impacts on Mexico. After the imposition of a 50% levy on imported steel and aluminium, Mexico’s steel exports to its northern neighbour dropped 60% in one month. Maquiladoras close to the US border have seen layoffs while some have been shuttered altogether. In September, Mexico’s manufacturing activity was down 1.3% year on year.

Light vehicle exports to the US – a major portion of northbound flows – sank 0.9% in the first nine months of this year compared to the same period in 2024. Auto parts have been similarly hit. As much as 87% of Mexico’s production of auto parts is exported, predominantly to the US. The prospect of a 25% tariff on vehicles as well as parts made in Mexico with what Washington considers a high foreign content has prompted US car makers to review their sourcing and production in Mexico.

In the first 10 months of this year rail traffic from Mexico to the US dropped 3.7% compared to the same period in 2024. Intermodal and automotive vehicles & parts were the only segments that registered increased volumes (of 3.5% and 6% respectively). In contrast, rail volumes of US and Canadian railways were up in the same period over a year ago.

While the rise of the nearshoring trend lifted Mexico’s fortunes, uncertainty over US tariffs and the looming renegotiation of the USMCA agreement that currently exempts many Mexican, US and Canadian goods from tariffs next year has stymied investment in the nation. Growth in foreign direct investment slowed from 50% in 2022 to 9% this year, according to a study produced by global management consulting firm Kearney in collaboration with the Council of Supply Chain Management Professionals (CSCMP).

At first glance, foreign investment still looks impressive. Over the past 18 months over $170bn poured into Mexico. However, most of this was re-investment or for acquisitions, while only 13% went to new greenfield projects, according to Bernhard Wurzinger, CEO of Guadalajara-based consultancy Spenza. He added that fixed investment fell year-on-year in the first half of 2025.

The Mexican government also appears to have second thoughts about some elements of the nearshoring promise. In September it announced plans to levy tariffs between 10% and 50% on a large number of goods imported from countries that do not have a trade agreement with Mexico, a move this is widely seen as targeting China first and foremost.

Without a doubt the move was welcomed in Washington and could ease USMCA and other trade negotiations. However, the legislation has been bogged down in parliament by opposition not only from the private sector, which has warned that this would produce a sharp rise in production costs, but also from within the governing party over fears of inflation.

The Kearney/CSCMP study also points to deficiencies in the nation’s logistics landscape, from road and rail capacity to ports.

The nation’s ports, notably the main Pacific gateways, have been plagued by congestion, and crime on the roads remains a major headache for companies considering investment in Mexico, the study points out. It notes that trucking volume to the US grew 2.1% in 2024 but is expected to shrink 1.5% this year. Seaborne merchandise transport and air cargo volume are forecast to contract 8.6% and 6.3% this year.

According to its authors, nearshoring has hit the pause button in Mexico. As long as relations with Washington remain in doubt, this is unlikely to change.