Mexico: Alignment for certainty in USMCA – Societe Generale

Societe Generale’s Dev Ashish argues that Mexico could benefit from tensions between the US and Canada, but warns that uncertainty around USMCA may limit the upside. Mexico’s lower-cost manufacturing base should help protect existing production, while new investment could increasingly favor the US as companies seek greater policy certainty. The report concludes that Mexico will need closer alignment with US supply-chain priorities to secure a more predictable investment environment.

Mexico weighs cost versus certainty

"Mexico faces opportunity and warning. To a great extent, the USMCA review has shifted from a trilateral process to two bilateral negotiating tracks: US-Mexico and US-Canada."

"Some Canadian production could eventually migrate to Mexico, but the dispute also undermines USMCA’s credibility as a predictable framework for long-term investment."

"Existing capacity is more defensible than new investment. Mexico’s lower-cost manufacturing base cannot be replicated quickly in the US without materially raising vehicle costs, making existing Mexican production relatively defensible."

"However, automakers could retain current plants while placing new assembly lines, battery facilities and supplier capacity in the US to reduce policy risk. Mexico could therefore preserve output while still losing the investment required for long-term expansion."

"Mexico must trade alignment for certainty. Mexico is not Canada’s obvious replacement."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)