## Online Annex 2. Relocation of Global Value Chains: The Role of Mexico

## Source details

**Canonical URL:** [Online Annex 2. Relocation of Global Value Chains: The Role of Mexico](https://www.imf.org/-/media/files/publications/reo/whd/2024/october/english/onlineannex2.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/reo/whd/2024/october/english/onlineannex2.pdf.md)
- [Structured JSON version](/-/media/files/publications/reo/whd/2024/october/english/onlineannex2.pdf.json)

---

### Overview
- Since the introduction of NAFTA in 1992, Mexico has steadily increased its share of US imports.
- Geoeconomic fragmentation, US tariffs on Chinese products in 2018–19, the aftermath of the pandemic, Russia’s invasion of Ukraine, rising Chinese labor costs, and higher trans-Pacific shipping costs contributed to relocation of supply chains.
- US imports from China have declined substantially since 2018, while shares from Mexico and other partners, including countries in Southeast Asia, have increased.

### Empirical findings (difference-in-difference analysis)
- Analysis uses six-digit product level trade data and shows that Mexico and other US partners increased exports to the United States more in industries affected by the 2018–19 tariffs.
- Estimated impact for Mexico:
  - Around US$75 billion.
  - Accounts for around 45 percent of total increase in Mexico’s exports to the United States during 2017–23.
- Mexico’s imports of intermediate goods that are inputs to tariff-affected products have also increased, but by smaller amounts and originating from various other emerging market economies, including in Asia.
- Mexico’s imports of intermediate goods from China increased by only a fraction of the increase of Mexico’s exports to the United States, implying final products exported from Mexico to the United States contain significant value added.
- Mexico’s imports of final goods (consumption and capital) from China, as a share of total imports, have increased, reflecting changing patterns in Mexico’s domestic demand (for instance, for cars and smartphones) and the increase in machinery investment to increase productive capacity.

### Trade and value-added implications
- Mexican firms are increasingly part of global value chains connected to the United States.
- The divergence between:
  - Large increase in Mexico’s exports to the United States, and
  - Modest increase in Mexico’s intermediate imports from China,
  implies exported final goods from Mexico embody substantial domestic or locally-sourced value added.

### FDI and investment patterns
- Mexico’s export penetration in the US market has been accompanied by an increase in Mexico’s share in total FDI to emerging market economies.
- FDI concentration:
  - Predominantly in the north and in manufacturing (auto and electronics) sectors.
  - FDI announcements to Mexico have been elevated.
  - FDI has continued to come predominantly from the United States (around 40 percent) and other advanced economies (around 40 percent).
- Empirical analysis shows FDI to Mexico increased in those sectors that were exposed to tariff changes.

### Conclusions
- A range of factors—cost competitiveness, proximity to the United States, integration into the North American market, and various trade measures—have allowed Mexico to deepen participation in global value chains, particularly for goods destined to the United States.
- As Mexico’s role in supply chains has expanded:
  - Mexico has increased imports of a range of inputs from a broad set of countries.
  - FDI into Mexico has been instrumental in supporting Mexico’s increasing share in US imports, with much of that FDI coming from the United States itself.

*Source: Online Annex 2. Relocation of Global Value Chains: The Role of Mexico.*

---


_Source: https://www.imf.org/-/media/files/publications/reo/whd/2024/october/english/onlineannex2.pdf_