Matter & Substance
  April 9, 2024

Nearshoring: Realigning Global Manufacturing to Mexico

Authored by: Fernando Lopez, International Tax Partner

Over the last several years, unprecedented supply chain disruptions caused by both the pandemic and geopolitical stress affected the global availability of raw materials, finished goods, labor, and talent. These issues severely affected production, logistics and sales and increased prices for businesses and consumers alike, contributing to inflation in the global economy. 


In the wake of these major global disruptions, many companies have reevaluated the risks and rewards of having manufacturing in distant low-cost locations like China and India. Instead, many have chosen to move some or all of their manufacturing operations to locations that are closer to their principal market – a development called “nearshoring.”

Realigning Manufacturing to Mexico

For goods destined for the U.S. market, Mexico has been a principal beneficiary of this realignment of global manufacturing activity.  The main reasons for this is Mexico’s reduced manufacturing costs, its large, skilled workforce, and its strategic location to the U.S., Canadian and LATAM markets. Compared to manufacturing in China, Mexico offers greater long term political stability and greatly reduced exposure to logistics disruptions that can be cause by natural or geopolitical events.

In addition, the free trade agreement between Mexico, the U.S. and Canada permits the reduction or elimination of tariffs. Evidence of the extent to which global manufacturers have moved activity from China to Mexico is the fact that in 2023, the U.S. bought more goods from Mexican than China. This is the first time this has happened in the last 20 years.

Tax Implications of Nearshoring

The tax implications of modifying cross-border supply chains to leverage the nearshoring opportunities in Mexico can be challenging, requiring realignment with a new tax jurisdiction, modification of distribution routes, realignment of funding channels, and modification of legal agreements. It may also require relocation of key assets, functions, or employees. Mowery & Schoenfeld’s international tax specialists can help you every step of the way. Our LATAM Practice works day in and day out with companies operating in Mexico and can help make the setup of Mexican operations as smooth as possible.

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