South vs. North: Why Mexico Still Wins the Nearshoring Battle

Nearshoring isn’t a trend anymore, it’s a necessity. The move to bring U.S. supply chains closer to home to reduce risk, lower costs, and shorten delivery times has become a strategic imperative for companies and investors alike. As global logistics remain vulnerable to tariffs and geopolitical volatility, the key question is no longer whether to nearshore, but where. And when comparing Mexico to Canada, the data continues to point clearly south.

Mexico’s Momentum Is More Than Macro

Foreign direct investment is flowing into Mexico at a historic clip. Foxconn is ramping up its presence in Chihuahua. Amazon and Nvidia have staked claims in the Bajío region and Monterrey’s industrial corridors. Real estate developers can’t build fast enough, vacancy rates for Class A industrial space in hotspots like Nuevo León and Guanajuato remain under 1%.

Since 2023, Mexico has held its position as the United States’ largest goods trading partner, surpassing both Canada and China. As of early 2025, Mexico accounts for nearly 15% of total U.S. trade, evidence of how deeply embedded it has become in North American supply chains. The country’s industrial corridors are no longer just low-cost zones,they’re central nodes in a re-architected regional economy.

While Canada offers mature infrastructure and political predictability, Mexico delivers something else: agility, scale, and operational advantage. For supply chain strategists, and capital allocators, those qualities matter more than ever.

Not All Tariffs Land the Same

With Trump-aligned Republicans pushing for a flat 10% tariff on all U.S. imports, nearshoring is no longer just a hedge against geopolitical shocks, it’s a response to political inevitability. The proposal, gaining traction ahead of the 2026 midterms, has already shifted how multinationals and capital allocators are thinking about cost structures, sourcing geographies, and operational resilience.

Mexico, while not immune, is positioned to weather the impact better than most. Under modeled scenarios, Mexican auto exports to the U.S. are projected to decline by 40–50%. Canadian exports? A steeper contraction, estimated at 53–68%, with sharper pullbacks in machinery, electronics, and apparel.

Why the divergence? Cost structure plays a major role. Higher wages, stricter labor laws, and energy intensity make Canadian manufacturing less nimble. Mexico, by contrast, maintains leaner margins and a broader buffer to absorb trade shocks. When tariffs hit, they still sting, but Mexico stays more competitive.

Labor and Logistics Tilt the Field

Mexico’s labor force is young, increasingly skilled, and still meaningfully more affordable than its U.S. or Canadian counterparts. While minimum wages have risen sharply in recent years, the overall labor cost advantage remains intact. More importantly, vocational training and tech-enabled manufacturing are reshaping the productivity profile of Mexican labor across key sectors like automotive, aerospace, and consumer electronics.

On the logistics side, proximity is paying off. U.S.–Mexico border crossings now rival seaports for throughput, thanks to upgraded intermodal capacity, highway investments, and streamlined customs processes. Localized supplier ecosystems are also gaining traction, enabling nearshoring operations to reduce lead times and exposure to transpacific bottlenecks.

These dynamics not only reduce operational friction, they open the door for private capital to pursue vertical integration strategies, regional rollups, or infrastructure plays tied to trade flow.

Political Clarity, or Commercial Conviction?

Canada offers a cleaner policy story, but a less compelling growth one. With the Liberal Party, now led by Mark Carney, securing a minority government in the April 2025 federal election, investors have some clarity, but not necessarily confidence. Carney’s platform emphasized national sovereignty and a more assertive posture toward U.S. trade pressure, but how that translates into cross-border industrial cooperation remains uncertain. For now, Canada continues to offer predictability in governance, but lags behind Mexico in cost competitiveness, supply chain integration, and private capital momentum.

Mexico, by contrast, is now several months into a new administration. With Claudia Sheinbaum inaugurated in Q3 2024, early signs point to continuity in industrial policy, a pragmatic stance on U.S. relations, and further investment in logistics infrastructure. While concerns remain around energy nationalism and security, the private sector push, especially in manufacturing and cross-border logistics, has not slowed.

Political clarity matters, but it’s no substitute for commercial traction. And Mexico has that in spades.

The Bigger Picture: Mexico’s Advantage Is Structural

Nearshoring isn’t a zero-sum game, but Mexico continues to capture a disproportionate share of the upside. The 2010s were defined by China’s global manufacturing dominance. The 2020s are defined by fragmented supply chains and regional resilience.

Mexico is at the epicenter of this transition. With its unique combination of geography, trade architecture, and cost competitiveness, it has become a first-choice destination for multinationals recalibrating their North American footprint.

For private investors, that opens multiple channels of exposure:

Industrial and logistics real estate with favorable yield dynamics

Manufacturing expansion supported by government incentives and cross-border demand

Infrastructure modernization across energy, transport, and ports

Domestic consumption tailwinds driven by wage growth and urbanization

What to Watch

• Post-election industrial signals in Mexico. As Sheinbaum’s administration builds its first full-year budget, early decisions on energy reform, infrastructure investment, and security partnerships will shape investor risk models.
  
• Canada’s 2025 federal election. How Ottawa navigates its economic relationship with Washington, especially around climate-aligned manufacturing and U.S. industrial subsidies, will determine its nearshoring competitiveness.
  
• The next phase of U.S. tariff strategy. Calls for across-the-board tariffs from Trump-aligned legislators are gaining traction ahead of the 2026 midterms.
  
• AI, EV, and chip-driven supply chain anchoring. Semiconductor fabs and EV gigafactories are becoming gravitational centers. Mexico’s role in supplying components and labor to these ecosystems will determine its next wave of FDI.
  
• Freight and customs modernization across the U.S.–Mexico border. Federal investment and private capital are converging to expand throughput at key entry points like Laredo, Otay Mesa, and Santa Teresa. These projects will directly influence investment in surrounding corridors.