Why Has “Nearshoring” Failed to Ignite Mexico’s Manufacturing Boom?

In recent years, as the U.S. has pushed for a “de-Sinicization” of its supply chains, the drive to build a more resilient and secure industrial system has become the dominant theme in global economic restructuring. As a core strategy within this agenda, nearshoring has emerged—referring to the practice of relocating production or services to regions geographically closer to the home country in order to reduce transportation costs, mitigate geopolitical risks, and enhance supply chain responsiveness.

The United States has been the main driver of nearshoring, and due to geographic and political proximity, Latin America—especially Mexico, which shares a long border with the U.S.—naturally became a prime destination. Historically, Mexico has had a deep-rooted manufacturing relationship with North America. Since the mid-20th century, Mexico and the U.S. have steadily strengthened their manufacturing collaboration, particularly in sectors such as automotive, electronics, and aerospace. In the nearshoring era, Mexico’s low labor costs, robust industrial base, and trade advantages under the United States–Mexico–Canada Agreement (USMCA) have once again positioned the country as a top contender for “manufacturing reshoring” gains.

But the reality is far more complex.

Structural Weaknesses Are Slowing Mexico’s Nearshoring Momentum

Although nearshoring initially triggered a surge of enthusiasm for industrial real estate and manufacturing investment in Mexico, structural bottlenecks are now becoming evident and eroding market confidence.

The most critical issue lies in energy and infrastructure. Mexico’s energy transition has been slow, and the national grid suffers from reliability issues—especially in northern industrial zones where power outages and rationing are not uncommon. Additionally, inadequate infrastructure in roads, water systems, and electricity—combined with lower logistics efficiency compared to manufacturing powerhouses like China and Vietnam—poses significant challenges to fast-paced supply chains.

Public security also casts a long shadow over industrial optimism. Frequent incidents involving drug cartels—such as hijackings, extortion, and violence—have forced many multinational logistics firms to increase security spending or even suspend certain transportation routes. In the first half of 2023, Mexico’s homicide rate stood at 12 per 100,000 people—well above the global average. Truck driver strikes protesting road safety have become increasingly common, highlighting the direct threat public security poses to supply chain stability.

Another major concern is the quality of labor. While Mexico has a youthful population and abundant labor supply, it suffers from a shortage of high-skilled workers. Only about a quarter of its workforce has a background in STEM (Science, Technology, Engineering, Math), making it difficult for emerging industries like semiconductors, AI-based manufacturing, and medical devices to establish a foothold. Even in traditional strongholds like automotive and aerospace, production remains concentrated in regions with experienced workers, making rapid scaling difficult.

A Cold Shower from the Capital Markets: A 30% Drop in REITs as Warning and Wake-Up Call

Perhaps the clearest indication of unmet expectations can be found in Mexico’s industrial Real Estate Investment Trusts (REITs). At one point, nearshoring was expected to fuel a boom in industrial real estate. Several REIT products aggressively expanded into manufacturing parks and logistics facilities. However, by 2024, although Mexico’s foreign direct investment (FDI) continued to grow—reaching $36.872 billion for the year—the growth rate fell short of expectations, and actual forex inflows declined. This cooling investment sentiment has been directly reflected in the REIT market, with many major funds seeing cumulative losses nearing 30% in the first half of the year.

One of the hardest-hit funds was Prologis Property Mexico. Morgan Stanley had once maintained an optimistic stance on Mexico’s market prospects, but that view changed sharply after Claudia Sheinbaum assumed the presidency in June 2024, triggering a steep decline in Mexican stock indices. The firm promptly downgraded its rating on Mexico’s stock market and slashed its REIT holdings. In its report, Morgan Stanley stated bluntly: “There is no clear growth trajectory for nearshoring. We are reducing our risk exposure accordingly.”

Beyond domestic risks, shifts in U.S. policy have also weighed heavily on the market. The return of Donald Trump has introduced renewed uncertainty in trade policy, prompting many multinational corporations to pause or delay their investments in Mexico. According to estimates by the D&M law firm in Mexico, nearshoring may create 1.1 million new jobs over the next three years—but nearly one-fifth of these will be in management and technical roles, for which Mexico currently lacks sufficient local talent.

Perhaps the most severe blow has come from global financial shifts. In a persistently high interest rate environment, capital is flowing back to the U.S., with investors flocking to safer and more liquid assets like U.S. Treasuries and money market funds. In contrast, emerging markets like Mexico—plagued by currency volatility, regulatory uncertainty, and geopolitical risks—have seen their risk premiums rise and investment appeal decline.

Nearshoring Isn’t a Shortcut, But a Long-Term Campaign

North American supply chain restructuring is indeed underway. But contrary to some of the more optimistic forecasts expecting a manufacturing renaissance, this transition looks more like a slow and rocky road. Mexico has many natural advantages in the nearshoring movement, but to truly seize this wave of industrial opportunity, it must confront its structural weaknesses head-on.

The capital market’s swift reaction serves as a reality check: beneath the grand narrative, investors prioritize feasibility and risk control. Once confidence is shaken, bubbles can burst much faster than they’re built.

Nearshoring is not a slogan—it is a systemic transformation. And for Mexico, the search for its rhythm continues.