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Nearshoring hopes look overdone.

With geopolitical tensions between the US and China forcing businesses to diversify supply chains, the country’s stability, low labour costs, and geographic proximity have raised hopes that a “Made in Mexico” moment is at hand. Indeed, the country has displaced China as the United States’ largest trading partner.

Share of US imports, 12-month moving average, %

But under López Obrador, energy policy has become less flexible and even less climate-friendly, limiting the extent to which companies with net-zero commitments can relocate production facilities. Critical regulatory bodies remain captive to political whims. And the country devotes an incredibly low share of gross domestic product to research and development, putting constraints on how far factories can move up the value chain – particularly relative to the Asian tigers located closer to China. As the country’s growing trade deficit with both China and the world shows, a significant share of value-added activity in manufacturing is happening beyond Mexican borders. We suspect that markets will ultimately revise expectations for inward investment flows lower.

Merchandise trade balance by country, 12-month rolling sums, billions US dollars

USD doldrums continue
Canadian jobs growth tops expectations, but details point to slowdown ahead
The peso’s bull run has run out of steam.
The fiscal outlook still looks favourable.
Canada's economy is slowing.
Expectations are falling.