Mexico's Alignment for Certainty in USMCA Trade Agreement

Mexico's manufacturing sector may benefit from the ongoing tensions between the US and Canada over the USMCA trade agreement, but the country still needs to ensure closer alignment with US supply-chain priorities to secure a more predictable investment environment, according to Societe Generale.

Dev Ashish, an analyst at Societe Generale, argues that Mexico's lower-cost manufacturing base should protect existing production, while new investment may increasingly favor the US as companies seek greater policy certainty.

The ongoing dispute between the US and Canada is undermining the credibility of USMCA as a predictable framework for long-term investment, making it essential for Mexico to find its place in the trade agreement. Existing capacity is more defensible than new investment, with Mexican production relatively protected due to its lower costs.

However, automakers may choose to retain current plants while placing new assembly lines and supplier capacity in the US to reduce policy risk, potentially leading to a loss of investment required for long-term expansion in Mexico. To remain competitive, Mexico must trade alignment for certainty, recognizing that it is not an obvious replacement for Canada.