Scotiabank sees resilient USMCA, urges Mexico to boost export value

Scotiabank anticipates that the United States-Mexico-Canada Agreement (USMCA) will withstand ongoing trade tensions, but strongly advises Mexico to enhance the value-added components of its exports. Eduardo Suarez, director of Economic Studies at Scotiabank, suggested that Mexico should exercise patience in its trade negotiations with the U.S., avoiding premature acceptance of less favorable terms. He noted that both U.S. businesses and state governments rely heavily on the integrated production networks with Mexico and Canada.

Rodolfo Mitchell, the bank's director of Economic Analysis and Sectorial Analysis, concurred that the USMCA is likely to survive political strains, though he cautioned that upcoming U.S. midterm elections could temporarily escalate trade hostilities. Despite tariff-related noise, Mexico remains the U.S.'s primary trading partner and is increasing its market share. However, Mitchell pointed out that only about one-third of Mexican states are fully capitalizing on this integration, which limits the export dynamism's impact on the broader economy and keeps Mexico's growth rates around a modest 1%.

Scotiabank identified specific industrial clusters, such as the automotive sector in the Bajío region and aerospace in Querétaro, as examples of successful integration. Conversely, they noted that five to six key industries, including machinery, electronics, automotive, food, and specialized manufacturing, account for 70-75% of exports to the U.S. Within these, sectors related to artificial intelligence, such as servers and data processing equipment, are showing increasing participation, potentially surpassing the automotive industry's share. However, Mitchell warned that Mexico often functions primarily as an assembler in these sectors and must advance towards producing higher-value components, a transition historically seen in the automotive industry.

To achieve this, Scotiabank proposes policies that integrate national suppliers and strengthen engineering education. The bank also identified significant obstacles, including deficits in water, electricity, and transportation infrastructure, as well as shortcomings in education, connectivity, and security. Addressing these issues is crucial for Mexico to fully leverage the USMCA and achieve more robust economic growth, moving beyond basic assembly to sophisticated, high-value manufacturing.