TRADE,
ECONOMY,
AND WORK
Center for U.S.-Mexican Studies
U.S.-MEXICO
FORUM 2025
2
KEY RECOMMENDATIONS
Restore a cabinet-level economic
dialogue to institutionalize cooperation
and drive progress across the many
facets of the bilateral economic
agenda.
The USMCA creates pathways for
both cooperation and disputes. Focus
rst on strengthening cooperation as
both a way to address challenges and
improve regional competitiveness.
Strengthen regional supply chain
security by aligning essential industries
and establishing protocols for
emergency response.
Create a regional workforce
development dialogue. Technology is
quickly changing the future of work,
and a coordinated response is required.
Put sustainable development and
inclusive growth at the center of the
bilateral economic agenda. To maintain
public support for regional integration,
these shared challenges must be
adequately represented.
Support subnational leaders‘
involvement in the binational economic
relationship.
The nal section of this paper provides
a more detailed and complete set of
recommendations.
The economies of the United States and Mexico are deeply connected.
The United States is, by far, Mexico’s top trading partner, and Mexico is the
United States’ second largest partner.
1
While cross-border trade volumes
are massive, it is the depth of manufacturing integration that makes the
U.S.-Mexico economic partnership unique. A full half of bilateral trade is in
inputs for production, parts and materials moving back and forth across
the border as the two nations co-produce everything from automobiles to
beer.
2
Economic and productive integration, which has been fostered by the
North American Free Trade Agreement (NAFTA) and now the United States-
Mexico-Canada Agreement (USMCA), has synced the U.S. and Mexican
economies, which now tend to experience cycles of growth and recession
together. Deeper still, our competitiveness is linked. Through manufacturing
integration, the United States and Mexico can divide production in ways that
take advantage of their competitive advantages, strengthening the region.
In this way, the economic interests of Mexico and the United States have
become closely aligned. Productivity enhancements on one side of the
border strengthen the competitiveness of the region as a whole, and
despite the fact that there are cases in which an investment won on one
side of the border means an investment lost on the other, research shows
that it is more common for companies to simultaneously create jobs on
both sides of the border as they expand their investment in the regional
economy.
3
In the United States, some ve million jobs depend on trade with
Mexico, and a similarly large number of jobs in Mexico depend on trade
with the United States.
4
The ratication and implementation of the USMCA updated and restored
certainty to the system of regional trade and production, and the conclusion
of the renegotiation process opened space for the development of a new
bilateral (and with Canada, a trilateral) agenda for economic cooperation.
The USMCA was passed with broad support from representatives of every
major political party in the U.S. and Mexico, providing a stable platform for
the future of bilateral economic relations.
As the United States and Mexico each seek to stimulate recovery
domestically and prepare for economic transformation, they need to keep
in mind that the depth of North American integration makes job creation
and export growth largely regional enterprises. This short paper will explore
these challenges, examine the impact of changes to the regional economic
framework through the USMCA, and propose a series of measures the
United States and Mexico can take together in the coming years to
strengthen the regional economy.
A Challenging and Quickly Evolving Economic Outlook
The U.S. and Mexican economies, like others around the world, face
huge challenges as a result of the COVID-19 pandemic. The U.S. GDP for
2020 declined 4.3% and the IMF has forecast a much steeper 9% drop for
Mexico. The pandemic induced recession will force millions into poverty
1. https://www.census.gov/foreign-trade/statistics/highlights/top/top2008yr.html
2. https://www.wilsoncenter.org/publication/nal-report-growing-together-economic-ties-between-the-
united-states-and-mexico
3. Theodore H. Moran and Lindsay Oldenski, “How U.S. Investments in Mexico have increased investment
and jobs at home” in NAFTA 20 Years Later, Washington, DC: Peterson Institute for International
Economics, November 2014
4. https://www.wilsoncenter.org/publication/nal-report-growing-together-economic-ties-between-the-
united-states-and-mexico
U.S.-MEXICO FORUM 2025
Trade, Economy, and Work
A Shared Agenda for a Stronger Economic Future
Álvaro Santos and Christopher Wilson
3
in each country, increase internal inequality, and, because
of the dierence in the magnitude of recession expected
in each country, only serve to widen the development gap.
Reactivating the regional economy and recovering from the
recession will be the principal economic challenges facing
both the United States and Mexico for the next several
years.
Many possible options, such as scal stimulus and monetary
policy, are essentially domestic in nature, but there are
important matters of shared concern and even opportunity.
Both governments ordered the temporary closure of
activities not deemed “essential,” but a lack of cross-
border coordination, initially caused disruptions even to
critical industries such as medical device manufacturing.
In contrast, the U.S. and Mexican governments worked
closely together and jointly announced restrictions on non-
essential travel across the border. With border towns and
cities suering from the resulting economic slowdown, they
will need to coordinate just as closely to nd ways to safely
reopen the border.
Finally, and perhaps most importantly, many companies
are reevaluating their global production networks and
prioritizing supply chain security and resilience as a result
of U.S.-China trade tensions and the pandemic. This oers
North America a tremendous opportunity to reshore
investment to the region, but it is an opportunity that could
be missed if the right policies and programs are not in place
to attract and welcome that investment.
Though accelerated by the pandemic, digital transformation
and automation have been roiling labor markets and rapidly
changing demand for skills for many years. Many workers,
especially in manufacturing and energy industries, but
increasingly in oce jobs, have been left behind as the
economy evolves before them. The U.S. and Mexico must
nd ways to support major improvements to our workforce
and skills development systems in order to maximize
regional competitiveness and ensure that all workers have a
place in the 21st Century North American economy.
Similarly, the demand for climate change action is more
urgent than ever. The response to this challenge is
especially important in the energy sector, and the U.S.-
Mexico Forum has a working group that has put together a
comprehensive strategy on sustainable development and
energy systems. Economic development and environmental
protection, including both climate change mitigation and
adaptation, cannot be divorced.
In the border region, the importance of addressing issues
of water scarcity became abundantly clear this year when
social unrest erupted in Chihuahua at the Boquilla Dam
as Mexico struggled to meet its water transfer obligations
under the binational water treaty. Ultimately, cooperation
prevailed but the challenges of resource scarcity will only
grow. Border region leaders will need to work together to
design and implement strategies that meet the economic
and environmental needs of their communities.
There is a huge potential for this type of cooperative
5. David Autor, David Dorn, Gordon Hanson, “The China Syndrome: Local Labor Market Eects of Import Competition in the United States,” National Bureau of Economic
Research Working Paper 18054, Cambridge, MA: NBER, May 2012, pp. 20-21, http:// www.nber.org/papers/w18054.
cross-border economic development in the border region.
Well over a billion dollars in commerce crosses the border
each day, and the GDP of the six Mexican and four U.S.
border states is larger than the GDP of all but the three
largest countries in the world. To take full advantage of
this opportunity, the U.S. and Mexican governments need
to facilitate and support greater cross-border cooperation
among state and local ocials in the region. Initiatives like
the Border Governors Conference, which has not met for
several years, and the Border Mayors Association need
robust support.
Fueled by growing gaps in income inequality, populism,
and economic nationalism have grown around the world
in recent years making regional and global cooperation
more dicult to pursue. In Mexico, this is evidenced by the
signicant productivity gap between globally connected
manufacturing and the rest of the economy. Persistent
underinvestment in the poorer south, limited development
of homegrown startups, and an insucient focus on
expanding the domestic supplier base for manufacturing
exporters have each contributed to the challenge. In the
United States, the decline of manufacturing employment
over the past several decades has contributed signicantly
to the rise of economic nationalism. Productivity enhancing
technology and the globalization of production, in particular
the insertion of China into global value chains, has increased
the pressure on low- to middle-skilled manufacturing
workers.
5
In both countries, domestic policy issues such
as taxation, education and workforce development, and
health are among the most important tools to address
problems related to income distribution, and North
American cooperation can play an important role in creating
opportunities for and protecting workers across the region.
Despite the prominence of trade skepticism heard in
both countries, the reality of the U.S.-Mexico economic
relationship is that we are stronger together. The deep
integration of the manufacturing and other productive
networks across the U.S.-Mexico border binds our economic
futures. Our region faces big challenges caused by the
coronavirus pandemic as well as deeper structural shifts. In
such challenging times it is easy to look inward and prioritize
domestic issues, but to do so would be a mistake, for both
countries. We must instead work together and embrace the
complementarities of our economies in order to strengthen
our global competitiveness and build a 21st Century
economy that works for everyone in each of our countries.
Trade, Supply Chains, and Work under the
New USMCA
The United States-Mexico-Canada Agreement (USMCA),
eective since July 1, 2020, ended the uncertainty triggered
by the renegotiation of the North American Free Trade
Agreement (NAFTA) and the threat of its elimination. The
USMCA provides continuity with NAFTA on many fronts and
provides governments and market actors in North America
with a framework where they can operate with certainty.
... the reality of the U.S.-Mexico economic relationship is that we are
stronger together.
“
4
Estimates for USMCA’s growth impact on the U.S. economy
are very small. The U.S. International Trade Commission
estimated them around GDP 0.35% or $68.2 billion in the rst
six years. Although the Mexican government has referred to
it as an important element of its overall economic strategy,
there haven’t been similar estimates of the economic impact
of USMCA. The low estimates reinforce the importance
of holding realistic expectations about USMCA’s potential
in regard to economic growth. It also makes clear that
USMCA will not on its own solve the issues of economic
growth. Governments need to build on the structure
already constructed under NAFTA and further enhance and
“technologize” the private sector networks and the cross-
border infrastructure and processing to stimulate growth.
USMCA came into an environment signicantly dierent
from the free trade optimism that ushered in NAFTA twenty-
ve years before. Concerns about the eects of trade, the
deepening asymmetries between capital and labor, and
increasing economic inequality have fueled much of the
discontent against free trade agreements of the last three
decades in both poor and rich countries alike.
6
The U.S.
took an aggressive oppositional stance toward “globalist”
trade policy, withdrawing from TPP, starting a tari war with
China, renegotiating NAFTA and several bilateral trade
agreements, and using national security taris against
trading partners. And while these changes were executed
under the Trump Administration, both Hillary Clinton and
Bernie Sanders vowed to withdraw from the Trans-Pacic
Partnership (TPP) and renegotiate NAFTA if they had been
elected. The trade and investment agenda of the Biden
campaign — and of the incoming Biden administration —
make clear that many changes in U.S. policy are here to
stay. There will be continued attention to job creation in the
U.S., to the well-being of American workers, to discouraging
oshoring and investment abroad, and to encouraging
onshoring and investment at home.
NAFTA achieved an unprecedented economic integration
in North America, but its overall welfare eects fell far short
of what was expected. While ows of trade and investment
increased dramatically between the U.S. and Mexico, their
eect on growth was disappointing. During 1994-2016,
Mexico’s GDP per capita grew only 1.2% on average per year,
among the lowest in Latin America.
7
Mexico’s wages lagged
behind productivity, even in the successful, export-oriented
manufacturing rms.
8
In fact, the apparent paradox between
Mexico’s liberalization program heralded by NAFTA and its
underwhelming, domestic overall economic eects should
serve as warning about the connection between trade and
growth.
9
Instead of convergence with the U.S., Mexico has
experienced further divergence where it matters most.
Mexico’s GDP per capita is no higher relative to the U.S. than
it was in the years preceding NAFTA and labor productivity
is farther behind relative to the United States’ than in the
pre-NAFTA years.
10
While not all of the Mexican economy’s
virtues or ills can be pinned on NAFTA, it is clear that NAFTA
reshaped the Mexican economy and that subsequent
6. See, e.g., WORLD TRADE AND INVESTMENT LAW REIMAGINED: A PROGRESSIVE AGENDA FOR AN INCLUSIVE GLOBALIZATION (Álvaro Santos, David Trubek and Chantal
Thomas eds., Anthem Press 2019).
7. “Did NAFTA Help Mexico? An Update After 23 Years” Mark Weisbrot et al. Center for Economic and Policy Research (March 2017) https://www.cepr.net/images/stories/
reports/nafta-mexico-update-2017-03.pdf?v=2
8. Robert A. Blecker, Juan Carlos Moreno-Brid and Isabel Salat, “La Renegociación del TLCAN: La Agenda Clave
Que Quedó Pendiente” in La Reestructuración de Norteamérica a Través del Libre Comercio: Del TLCAN al TMEC (Oscar F. Contreras, Gustavo Vega Cánovas y Clemente Ruiz
Durán eds. 2020).
9. See Dani Rodrik, “Mexico’s Growth Problem”, Project Syndicate, Nov. 13, 2014 https://www.project-syndicate.org/commentary/mexico-growth-problem-by-dani-
rodrik-2014-11. See also See Nancy Birdsall, Dani Rodrik & Arvind Subramanian, How to Help Poor Countries, FOREIGN AFF., July/Aug. 2005, at 138.
10. Robert. A. Blecker, “Integration, Productivity, and Inclusion in Mexico: A Macro Perspective”, in Innovation and Inclusion in Latin America: Strategies to Avoid the Middle
Income Trap (Alejandro Foxley and Barbara Stallings eds. 2016) pp. 175- 204.
11. Oce of the U.S. Trade Rep., Exec. Oce of the President, Agreement between the United States of America, the United Mexican States, and Canada 05/30/19 Text (2018)
[hereinafter USMCA]. Ch. 4, app. to annex 4-B, Product-Specic Rules of Origin for Automotive Goods, art. 3.
12. Id. art. 4-B.7.
13. Id. arts. 4-B.3.7. and 4-B.6.
14. Enrique Dussel Peters, Efectos del TPP en la Economía de México: Impacto General y en las Cadenas de Calor de Autopartes-Automotriz, Hilo-Textil-Confección y Calzado,
Cuaderno de Investigación TPP-04, Senado de la República, 2017,p.24 https://dusselpeters.com/115.pdf
Mexican governments were not able to advance policies
that capitalized on the opportunities or tempered the
resulting asymmetries.
The new USMCA and the changes in U.S. policy will no
doubt bring challenges but also oer an opportunity to
focus on the distributional consequences of trade and
investment, which had been largely ignored, and on the
overall eects for the economy. For Mexico, this will oer
an opportunity to devise its own development strategy
without expecting USMCA to deliver it. If NAFTA oers one
clear lesson, it is that increasing (and now maintaining) trade
and investment ows is not a growth strategy. USMCA will
allow both countries to focus on domestic economic policy
while maintaining the potential benets of a high degree of
regional integration. For now, changes in USMCA on rules
of origin, investment and labor may portend a new direction
in U.S. policy for future trade agreements. Even if, for now,
USMCA preserved much of NAFTA, it may continue to
change as a result of future review cycles, now embedded
in the operation of USMCA by design. Below, we discuss the
most relevant changes USMCA has introduced.
1. Rules of Origin (ROO)
It is important to note that rules of origin in most sectors,
such as electronics and textiles, were maintained. This
ensures the continuity of most regional value chains
undisturbed. The most notable change came in the
automobile industry. Here, three aspects are noteworthy:
y The regional value content (RVC) requirement increased
from 62.5% to 75%, which means that the percentage of
non-regional content allowed dropped by 33.3%.
11
y A labor value content (LVC) requirement was that 40% of
the value of the car is manufactured with wages of at least
$16 dollars per hour.
12
y Certain automobile parts and components must be wholly
produced in the region and 70% of aluminum and steel
content should originate in the region.
13
The rules of origin for autos and auto parts agreed upon
in USMCA stand in stark contrast with those that had
been negotiated in TPP, which were considerably lower
than in NAFTA. This provides some relief to Mexican car
manufacturers in terms of the anticipated competition
with other TPP countries in the U.S. market. However, the
higher USMCA content requirement also presents important
challenges, given that an important share of inputs in
Mexican production come from outside North America.
14
An important question going forward is whether U.S. and
Mexican auto makers will be able to meet the higher
USMCA content requirement.
The new 75% regional value content aims to incentivize
greater production in North America and away from
5
other global value chains, notably from Asia. This may
present an opportunity for Mexico, if Mexican auto parts
suppliers expand the range of their production to include
additional inputs currently imported from outside the
region. Alternatively, global auto parts suppliers could move
production to Mexico so that their parts could be counted as
North American. Analysts estimate that 68% of production in
Mexico already meets the new content requirements.
15
An
open question is whether those rms who don’t meet these
requirements would adjust their production or opt out of
USMCA and abide by the U.S. most-favored-nation (MFN)
tari, which for autos is 2.5%.
The new 40% labor value content seeks to ensure that
the United States benets from a signicant part of the
production increase. Of this 40%, 15% can relate to research
and development, and information technology jobs, while
25% must relate to manufacturing costs. In Mexico, the
average wage rate in auto assembly ranges between $5
and $7 per hour,
16
while engineering and research and
development jobs already meet or are close to the $16
per hour requirement. This means that it will be practically
impossible for auto companies in Mexico to meet the $16
wage requirement in 25% of their production content, which
would have to come from the U.S. or Canada.
Analyses of the eects of the new ROO raise concerns
about possible increase in car prices, as cheaper parts from
other supply chains are substituted for more expensive
North American ones. A rise in consumer prices could
reduce demand and in turn lead to a production drop and
potential job losses.
17
2. Labor Rights and Labor Panels
The USMCA had three important features concerning labor
rights. First, the labor chapter included new state obligations
such as prevention of violence against workers, prohibition
on gender discrimination, and protection of migrant workers.
It also included an explicit recognition of the right to strike as
a component of the right to freedom of association.
Second, the labor chapter’s Annex includes a commitment
by Mexico to reform its labor laws and institutions. Mexico
adopted its new law on May 1, 2019 and is now in the
implementation phase. The reform i) establishes a new
dispute settlement system under the jurisdiction of Mexican
courts and eliminates the administrative labor conciliation
and arbitration boards, ii) creates an autonomous center for
labor conciliation and registration, which will register unions
and collective agreements, taking that function away from
the government, and iii) entrusts that center with verifying
that elections — deciding union leadership and majority
support of collective agreements — are personal, free,
direct and secret.
15. USMCA: Motor Vehicle Provisions and Issues, Congressional Research Service, Dec. 19, 2019. https://crsreports.congress.gov/product/pdf/IF/IF11387
16. “Only 269,000 Mexicans earn more than US $16 per hour, or 308 pesos” Mexico News Daily, Aug. 30, 2018.
https://mexiconewsdaily.com/news/only-269000-mexicans-earn-more-than-16-per-hour
17. See e.g. USMCA: Motor Vehicle Provisions and Issues, Congressional Research Service, Dec. 19, 2019. https://crsreports.congress.gov/product/pdf/IF/IF11387
18. Graciela Bensusán, Empleos en México bajo presión: con o sin TLCAN, en LA REESTRUCTURACIÓN DE NORTEAMÉRICA A TRAVÉS DEL LIBRE COMERCIO: DEL TLCAN AL
TMEC (Oscar F. Contreras, Gustavo Vega Cánovas y Clemente Ruiz Durán.
Finally, the Protocol of Amendment created a new
expedited enforcement mechanism called the Rapid
Response Panels. This mechanism allows for review and
remediation of a denial of rights in a relatively short process
(120 days). The panelists may verify whether a violation
exists by visiting the facility in question. When a violation is
conrmed and goes unredressed, the complainant country
may impose sanctions on the goods produced in violation
of the agreement, including higher taris, nes, or denying
entry.
The changes introduced by USMCA will require
important adjustments in Mexico. If the federal labor
law is implemented eectively, workers would be able
to associate, form independent unions and bargain
collectively, in a way they have not been able to do for
decades. It could mean the end of widespread simulation
in the form of “protection contracts” between corrupt
union leaders and rms, where workers didn’t choose
their union or even know they belong to one. It would
also mean the end of government intervention in union
governance, intimidation or outright violence in voting for
crucial decisions, and a biased dispute settlement system.
A striking feature in the Mexican economy is that wages
declined not only in those rms that fell behind or in sectors
that failed to integrate, but also in the most successful,
export-oriented rms, which were highly integrated in
the North American market, where wages fell behind
productivity.
18
The labor reform could gradually result in
better wages for Mexican workers. Higher wages could
incentivize employers in various export sectors to rely
less on cheap labor as their main competitive advantage
and instead seek to add value in the production chain,
innovating in their products, process of production or
business strategies. Workers with greater incomes would
also stimulate domestic demand. It is early to tell but signals
so far seem to indicate that while at the federal level the
reform is proceeding as planned, at the state level there
may be more hurdles and less political will.
Statements from the United States Trade Representative
(USTR) and the American Federation of Labor and Congress
of Industrial Organizations (AFL-CIO) indicating that they
expect to use the rapid response panels against Mexico
suggest that the mechanism will be tested in the near
future. As the experience of the World Trade Organization
has made clear, an excessive focus on dispute settlement
and strategic litigation could hamstring attempts to address
systemic problems. Adjudication could solve specic cases,
and it needs to be eective, but it is only one tool among
others in making sure commitments are enforced on both
sides.
Changes in USCMA labor rights was good news for
U.S. workers for at least two reasons. First, because it
incorporated the American labor movement concerns about
Changes in USCMA labor rights was good news for U.S. workers ...
“
6
social dumping, and it lended legitimacy to their concerns
about the distributional eects of trade. And second,
because it showed that the concerns of American workers’
organizations can be included, rather than excluded, in
trade negotiations and policy.
3. Changed Investment Regime and Reduction of Investor
Rights
USMCA introduced important changes in the investor-state
dispute settlement system (ISDS). The scope of investors’
rights was reduced to a “skinny” ISDS, which preserves
protection from direct expropriation and discriminatory
treatment but eliminates other rights under NAFTA. A new
requirement was that local remedies be exhausted before
investors can resort to arbitration. However, investors with a
“covered government contract” in specic sectors including
oil and natural gas, power generation, telecommunication,
transportation, and infrastructure enjoy the full panoply
of rights and can resort to arbitration without going rst to
national courts.
The reduction of rights responds to increasing concerns
about the investor-State dispute settlement system (ISDS)
in both developed and developing countries.
19
The USMCA
may indicate a new direction in trade agreements regarding
ISDS. The benet for U.S. and Mexico is the avoidance of
regulatory chill for fear of potential investor claims in areas of
public interest such as health and the environment, and the
prevention of costly liability and litigation costs for legitimate
regulation.
4. Digital Trade
USMCA liberalized the cross-border movement of data,
making the importation and exportation of digital products
duty free. It recognized the importance of measures to
protect consumers from fraudulent practices and protect
individual personal data. Furthermore, it outlawed data
localization requirements that made the establishment of
physical computing facilities a condition of doing business in
that country.
But there are two sources of tension. First, USMCA prevents
parties from assigning liability to internet service providers
for content placed on their platforms by third parties. Given
mounting concerns about fake news and disinformation
campaigns in social media platforms, we may see stricter
regulation in the U.S and the need to revise the USMCA
on this front. A second area of potential tension concerns
mechanisms for taxation of digital sales, which are allowed
under the USMCA as long as they are otherwise consistent
with the agreement. An important question is whether there
could be an evolving consensus on acceptable taxing
practices for digital companies, or if these would be ad hoc
understandings of dierent countries with the U.S., since
most of the aected global digital companies are American.
This may be a subject worth addressing in the context of the
USMCA Trade Commission.
Digital trade may oer an opportunity for small and medium-
size companies in Mexico to participate in regional trade
as service providers, in areas like cloud storage, ntech, or
software development.
5. Review Mechanism
While the U.S. original proposal for a ve-year sunset clause
did not make it to the nal text, USMCA is eective for a
renewable sixteen-year term (Article 34.7). On year six of the
Agreement (2026), the Free Trade Commission will meet to
conduct a “joint review” and the Parties may conrm they
19. See e.g. Robert Howse, International Investment Law and Arbitration: A Conceptual Framework in INTERNATIONAL LAW AND LITIGATION (H.R. Fabri ed., 2017).
https://www.iilj.org/publications/international-investment-law-arbitration-conceptual-framework/
want to renew the Agreement for another sixteen-year
term. If a party does not renew the Agreement on year six,
the Commission will meet and conduct a review every
year during the subsequent ten years, in which the parties
may conrm at any point their desire to renew it for another
sixteen-year term.
This term-specic feature of USMCA may create uncertainty
about the long-term continuation of the Agreement
and reduce incentives to invest in large-scale projects
that require big, upfront expenditures with expected
returns spanning many years. However, unlike NAFTA,
this mechanism provides an opportunity to evaluate the
operation and eects of the Agreement and to update
or amend it accordingly. By institutionalizing the review
process parties may be able to clarify interpretations when
there is doubt and to correct course if something is not
operating as expected.
How the U.S. and Mexico Can Work
Together to Take Advantage of this New
Framework
1. Work Together to Attract Auto Investment to the
Region
The biggest challenge for the industry is the possibility of
increasing production costs, which would result in higher
car prices, reducing consumer demand in North America
and competitiveness in export markets. Recently, the U.S.
and Mexico adopted alternative staging regime transition
periods to provide more exibility for companies aiming to
comply with the new rules. Both countries could use the
information received in companies’ applications to assess
the rules’ potential impact and ne-tune the strategy. This
could help governments minimize the potential negative
eects of the requirements, and consider longer transition
periods and possible exceptions. Evaluating the impact
of these rules of origin should be a priority in the review
process six years in.
2. A Coordinated China Strategy—Attracting Investment,
Managing Risks, Expanding Exports
The Transformation of Global Value Chains: We can
expect to see the continuation of a signicant transformation
in global value chains (GVC). The competitive race in the
digital economy and its telecom infrastructure will continue
to shape GVC and be a source of tension between the
U.S. and China. At the same time, the general U.S.-China
tensions, exemplied by the trade war, and the COVID-19
pandemic could make near-shoring increasingly relevant for
the U.S. and North America.
Mexico in the Context of U.S.-China Tensions: In USMCA,
Mexico committed to continue and to deepen its economic
integration with North America. On the other hand, Mexico
has an important trade relationship with China (its second
trading partner after the U.S.). Ideally, Mexico should
maintain both a deep and long-term relationship with the
U.S. and independent space to engage with China. USMCA
Article 32.10 provides that if a party enters into a free trade
agreement with a non-market economy, namely China, the
other parties may terminate the USMCA and replace it with a
bilateral agreement between them. This is another example
of how the growing U.S.-China tensions are inuencing trade
agreements. However, Mexico should be able to continue
to develop its trade and investment relationship with China,
without the need of a formal free trade agreement.
7
Mexico has seen a temporary benet in its trade relationship
with the U.S., becoming the latter’s rst trading partner as a
result of the tensions with China. Mexico’s potential benet
from the current tari war would depend on China’s share
in U.S. imports. There are ten sectors where Mexico could
benet, including electronics, auto parts, automobiles,
footwear, and apparel, among others (Dussel). However,
the trade gains for Mexico in terms of greater imports to
the U.S. so far have been minimal and FDI from the U.S. (or
China) has not increased. Taking advantage of this potential
opportunity would require a deliberate strategy from the
Mexican government and a coordinated strategy with the
private sector not seen yet. If the U.S. taris continue, there’s
also the potential of Chinese investment in Mexico in some
of these areas entering the U.S. market bypassing U.S. taris.
Again, whether this investment materializes, in the auto
sector or elsewhere, may depend not only on the incentives
that the new U.S. taris create for Chinese companies, but
on a deliberate strategy by the Mexican government.
Opportunities for Reshoring in North America and Greater
Integration with the U.S.: It is possible, though not certain,
that the Biden Administration will de-escalate the current
tari war with China, which has in fact increased the U.S.
trade decit. If the U.S. were to remove taris, it is unclear
when this would happen and in what sectors. What is
more certain is that the Biden Administration will launch a
“Supply America” plan to on-shore critical supply chains to
the U.S. and reduce dependence on China. This is part of a
broader plan on manufacturing and innovation, including
signicant investments in research and development. The
program seeks to strengthen domestic supply chains on
medical goods and equipment but goes beyond health
emergencies to include “energy and grid resilience
technologies, semiconductors, key electronics and related
technologies, telecommunications infrastructure, and key
raw materials.”
20
There will be a government-wide process,
in collaboration with the private sector, to monitor and
review vulnerabilities and address them as technology and
markets evolve.
A shift away from manufacturing dependency on China,
already visible in the auto sector in USMCA, can represent
an opportunity for North American supply chains, and for
Mexico specically, to take on some of that production.
Particularly if Mexico eectively implements its labor reform
and its manufacturing exports can no longer be perceived
as “social dumping”, Mexico’s proximity to the U.S., reliance
on a robust supply-chain infrastructure, qualied workforce
in manufacturing, and competitive labor costs could make it
attractive as a second-best to on-shoring, when producing
in the U.S. would make prices non-competitive.
3. Use Competitiveness Committee to Institutionalize
Further Trilateral Cooperation
Established by USMCA Chapter 25, the North American
Competitiveness Committee is composed by government
representatives of the three Parties and is scheduled to
meet annually. The committee’s mandate is broad, aiming
to “support a competitive environment” that promotes trade
and investment, but also regional economic integration
20. https://joebiden.com/supplychains/
21. See e.g. “Economic Impacts of Wait Times at the San Diego–Baja California Border,” San Diego Association of Governments, California Department of Transportation, District
11, January 19, 2006.
and development. It seeks to broaden the base of those
who benet from regional trade, assisting traders in each
party to identify further opportunities but also increase
the “participation of SMEs, and enterprises owned by
under-represented groups including women, indigenous
peoples, youth, and minorities.” It also seeks to propose
policies to develop a modern physical and digital trade and
investment infrastructure, as well as to foster cooperation on
technology and innovation.
As with any committee, it will be as good as the Parties
make it out to be. This could be a useful institutional
mechanism, which already foresees the engagement
with “interested persons” who can provide input. The U.S.,
Mexico, and Canada could use this committee to provide a
wide forum among the three nations, engaging the private
sector, labor, and civil society to receive important feedback
and ensure continued support for the Agreement. This will
not happen on its own and there may be inertia or even
resistance, so there will need to be a deliberate eort to
advance it and make the committee a relevant forum for the
governments and for civil society.
USMCA creates multiple committees, all under the purview
of supervision of the Free Trade Commission (Ch. 30). While
some of the committees pertain to specic trade areas
(i.e. agriculture, intellectual property, nancial services,
etc.), others are more general and cut across sectors. For
instance, in addition to the Competitiveness Committee,
there’s the Committee on SME Issues (Ch. 25), which is also
comprised of government representatives and scheduled to
meet annually. It foresees a trilateral dialogue on SMEs with
non-governmental actors. These more general committees
provide a space and a mechanism but don’t have ready-
made stakeholders. To ensure the eectiveness of the
USMCA institutional architecture, it will be important to
clarify the relationship between the dierent committees
and use these mechanisms to foster trilateral cooperation
on priorities.
4. Trade Facilitation and Cross-Border Infrastructure
There are 55 points of entry along the U.S.-Mexico border,
which process more than 80% of bilateral trade. With over
one million people and 447,000 vehicles crossing every
day, it is the most frequently crossed border in the world.
The U.S. and Mexico have an opportunity to streamline their
trade, implementing the new obligations under the USMCA
Customs Administration and Trade Facilitation chapter. In
addition, they should invest in infrastructure, both physical
and digital, to reduce wait times at the border that result in
billions of dollars lost.
21
Upgrading the ports of entry to build
a smart and ecient border that reects the dynamic trade
ows of the two countries could be a low-hanging fruit
where investment would yield important returns for both
countries.
There are ten sectors where Mexico could benet, including electronics,
auto parts, automobiles, footwear, and apparel ...
“
8
Beyond USMCA: An Agenda for Economic
Cooperation
As discussed above, the USMCA plays a critical role in
guaranteeing the future of North American trade and
manufacturing integration. It oers opportunities to attract
investments to the region and to eectively manage
conict in sensitive sectors. Nonetheless, it is not on its
own an economic growth strategy or a sucient bilateral
economic agenda. In fact, the intensity of the NAFTA
renegotiations over the past several years took so much
policymaker attention that other parts of the U.S.-Mexico
economic agenda lost steam. The High Level Economic
Dialogue (HLED), which coordinated this broader agenda,
did not survive the transition to the Trump Administration
in Washington, D.C., and the launching of the USMCA
negotiations. Now, with the USMCA passed and
implemented, it is time to create a new mechanism to
institutionalize and manage economic cooperation. To
be successful, however, this cannot simply be an exercise
in recreating the past. We must build institutions that are
capable of responding to the pressing economic challenges
of today and the opportunities on the horizon.
The new economic dialogue could be bilateral or trilateral
and North American in nature. In either conguration, three
components are needed to ensure its success. First is
leadership. The mechanism needs to be driven by cabinet-
level leaders that have the vision and energy to push
through bureaucratic bottlenecks and create meaningful
results that improve the lives of people on both sides of
the border. Second, a series of binational working groups
and councils need to be created to help design and then
drive progress on the agenda during the periods between
cabinet-level meetings. These groups need representation
from the wide range of agencies that must coordinate
eorts. Third, and importantly, robust mechanisms need
to be created to involve stakeholders and subnational
governments in the dialogue. The USMXECO CEO Dialogue
played an important role in generating ideas and helping
support initiatives of the HLED. Strong private sector
participation will again be very important, but outreach
needs to be stronger with civil society, labor, border
communities, and subnational governments both in the
border region and beyond. The importance of involving
border communities and subnational governments
from across both countries in the development and
implementation of U.S.-Mexico economic cooperation
cannot be overemphasized.
The rst task is to construct the agenda. It must be
ambitious and respond to the economic needs of average
people across the region. It needs to include elements
that the presidents could talk about in the Rose Garden or
National Palace. High prole issues such as job creation,
reducing inequality, and the climate crisis should be the
drivers of more specic and discrete tasks like improving
trade infrastructure, aligning regulation, or expanding
educational and research partnerships.
The rst component of any updated U.S.-Mexico economic
agenda must be to respond to the challenges (and
opportunities) presented by the COVID-19 pandemic and
related recession. The integration of cross-border supply
chains has created a deep level of interdependence
between the United States and Mexico; we supply one
another with medical devices that keep us safe during this
time, with vital food products, and with parts and materials
that allow factories on the other side of the border to keep
running. As such, the United States and Mexico must
create mechanisms to ensure that any future emergency
measures that impact production or logistics capacity be
at a minimum communicated and ideally coordinated with
ocials on the other side of the border. To the extent that
the governments of North America can align their denitions
of essential industries, they can increase their likelihood of
attracting investment from companies looking to strengthen
their supply chain security and resilience. Already, as a
result of pandemic-related supply chain disruptions and
increasing trade tensions between the United States and
China, companies are seeking to shorten and improve
reliability along their supply chains. The United States
remains the most attractive consumer market in the world,
so these dynamics create a strong incentive for greater use
of the North American production platform. To the extent
that the governments of North America can ensure investors
that they have developed systems to minimize disruption
during future crises, they will position themselves to take full
advantage of this trend.
NAFTA, just like economic globalization more generally, was
often portrayed by its critics as good for business elites but
not workers and impoverished communities. The reality may
be more complicated, but without a doubt the perception
left NAFTA vulnerable to attack and inherently unstable.
The strengthening of labor and environmental components
of NAFTA in the USMCA will help mitigate these attacks
in the future, but the United States and Mexico need to
develop a strategy of cooperation for inclusive growth. This
includes doing more to support greater participation of
small and medium sized businesses in regional trade. The
proliferation of e-commerce and ease of express shipping
make this more realistic than ever, but the prospect of
nding customers abroad and dealing with the customs
and logistics issues involved in international shipping
is still a major barrier. Border communities, which have
some of the highest rates of poverty in the United States,
need the support of the U.S. and Mexican governments to
develop and implement binational economic development
strategies that see their position on the border, with their
binational, bilingual, and bicultural populations, as an asset
to be leveraged for their development. Binational programs
to support women entrepreneurs, the development of
innovation ecosystems, and cross-border internships should
all be updated and revitalized.
The most important thing that can be done to promote
inclusive growth in the regional economy is an overhaul
of worker training systems. Rapid technological change,
more than anything else, has changed the labor market
THE IMPORTANCE OF INSTITUTIONS IN
U.S.-MEXICO RELATIONS
The United States and Mexico have an exceedingly
complex and broad relationship, encompassing
not only traditional issues of foreign policy but
also domestic matters such as the construction of
city roads to facilitate access to border crossings.
Achieving progress often requires the coordination
of actions from local, state, and federal actors from
across numerous agencies in both countries. Driving
coordination and overcoming bureaucratic obstacles
requires leadership from the highest levels, but also
working groups with the technical capacity to solve
problems. Institutions like the High Level Economic
Dialogue create synergy between these two levels,
with leaders providing the impetus to break through
bottlenecks and the working groups both identifying
important projects and providing the follow through
so that leaders feel their continued engagement is
productive.
9
landscape, bringing new value to higher education
and technical skills related to the management of new,
productivity-enhancing technologies. At the same time,
workers without those skills or education have seen their
opportunities diminish. Trade Adjustment Assistance has
played an important role in supporting workers who lost
their jobs due to increased import competition, but a much
larger, more comprehensive, and updated approach is
needed to address the simultaneous pressure put on many
workers from automation, robotics, and global competition.
Certainly, at its core, education and workforce development
is a domestic challenge for both the United States and
Mexico, but there are important ways in which, given
their economic integration, the two can also collaborate.
Tony Wayne and Sergio Alcocer have put forth a series of
recommendations for a regional workforce development
dialogue at the bilateral or trilateral level. They include the
following:
22
y Expand Apprenticeships and Other Types of Work-Based
Learning (WBL) and Technical Education, Including
Internships, Mentorships, and Mid-Career Learning
y Address Key Issues Surrounding Credentials, Including
Recognition and Portability, to Enhance Transparency
y Improve Labor Market Data Collection and Transparency,
Including Moving Towards Accepted Norms for
Employment, Education, and Skills-Related Data Collected
and for Making that Data Widely Available
y Identify Best Practices to Approach/Prepare for “The
Fourth Industrial Revolution,” the Transformative Arrival of
New Technologies and the Future of Work
We wholly endorse their recommendations and believe
workforce development to be a particularly timely addition
to the bilateral agenda for three reasons. First, the Andrés
Manuel López Obrador Administration has already made
the issue a priority, establishing a major youth internship
program, Jóvenes Construyendo el Futuro (Youth Building
the Future). Adding a binational component supporting
young Mexicans and Americans taking internships across
the border would be a natural t and important way to build
an interculturally competent North American workforce.
Second, due to the decentralized nature of higher education
in especially the United States but also Mexico, workforce
development is a great topic for the type of state and local
engagement in bilateral relations that we recommend.
Finally, this topic puts the worker rst, contributing to a
more inclusive approach to bilateral economic relations. Of
course, it also improves regional competitiveness, but in a
way that stands in contrast to the perceptions of an elite-
focused approach to globalization and regional integration.
For a very similar set of reasons to those outlined above,
the United States and Mexico should focus on expanding
opportunities for binational research and educational
partnerships. In 2014, the U.S. and Mexico launched
FOBESI, the U.S.-Mexico Bilateral Forum on Higher
Education, Innovation and Research, which was designed
to complement and focus existing U.S. and Mexican
eorts to expand student and research exchange more
broadly.
23
Supporters of the initiative in government and
academic institutions found that short-term (a semester or
less) exchange programs had the most promise to attract
student and professor interest while also expanding the
opportunities to traditionally underserved populations.
Like workforce development, this item would benet from
22. Cite forthcoming chapter.
23. https://mx.usembassy.gov/education-culture/education/the-u-s-mexico-bilateral-forum-on-higher-education-innovation-and-research/
24. https://www.nga.org/news/press-releases/subnational-leaders-gather-at-2018-north-american-summit/
25. https://www.mckinsey.com/business-functions/mckinsey-digital/our-insights/how-mexico-can-become-latin-americas-digital-government-powerhouse
its inclusion on the agenda for subnational forums for
cooperation like the Border Governors Conference and
North American Summit.
24
Technological advance is driving huge changes in the way
factories and oces around the world do business. Data
analysis is improving eciency in production and logistics;
articial intelligence systems (often hosted on the cloud)
are now the rst point of contact for many customer service
and IT departments; and meetings are at least as likely to
be virtual as they are in person. Digital transformation
is here today and will continue driving a restructuring of
work and the economy for years to come. Both the United
States and Mexico are well positioned to take advantage
of these trends, but both have major work to do to ensure
their workforces, infrastructure, and systems of governance
are ready for the economy of tomorrow. In particular,
Mexico lags behind other similarly developed nations in
the state of its digital economy.
25
The low proportion of its
population with a bank account, weak broadband access,
and unreliable post damper the growth of e-commerce and
sales of digital services. North America is otherwise primed
for major growth in regional e-commerce, so a concentrated
eort to improve these foundations of the digital economy in
Mexico could go a long way to create export opportunities
THE KEY ROLE OF STATE AND LOCAL
LEADERS
Increasingly, there are opportunities for governors,
mayors, and other subnational leaders to engage
counterparts across the border in ways that produce
tangible results for their constituencies. Over the
years, and with some ups and downs, organizations
like the Border Governors Conference, Border Mayors
Association, the U.S. National Governors Association,
and Mexico’s National Governors Conference (Conago)
have each participated in important cross-border
initiatives. They have worked to sustainably manage
water, reduce pollution, increase trade, coordinate
infrastructure development, and share best practices
on education and workforce development.
Because the United States and Mexico have federalist
systems of government, state and local leaders have
the power to impact key issues in bilateral relations. In
fact, though foreign relations are clearly the domain
of federal governments, state and local participation
is vital when it comes to things like building
interconnected road systems and growing student
exchange (and should be supported by the foreign
ministries). When managed successfully, state and
local leadership can even help tackle issues that are
too politically thorny for the federal governments, such
as immigration and water management.
The importance of local participation in bilateral
relations is especially apparent in border communities,
where everything from ghting res to economic
development has binational components, but mayors
from throughout both countries can nd value in
leading trade missions or developing university
partnerships across the border.
10
for small business. Focus is also needed on nancing opportunities for entrepreneurs in Mexico, which can in part be improved
by strengthening links between U.S.-based venture capital and Mexican startups.
Since NAFTA eliminated taris for most goods across North America, non-tari barriers, such as dierences in standards
and regulations ensuring product and food safety now act as some of the largest barriers to trade. Eorts to coordinate the
creation of compatible regulation across North America will improve regional competitiveness by allowing companies to
design and manufacture products for sale across the region. The United States has previously engaged both Canada (U.S.-
Canada Regulatory Cooperation Council) and Mexico (U.S.-Mexico High Level Regulatory Cooperation Council) on a bilateral
basis to harmonize regulation. These eorts should be revitalized and made trilateral. The eort should rst prioritize building
cooperation to write new rules before turning to the more dicult task of adjusting existing regulations to improve compatibility.
The Biden Administration has an ambitious plan to address climate change, and there are signicant opportunities for cross-
border collaboration in this area. The U.S.-Mexico Forum has a separate group that has developed a series of valuable
recommendations on issues of energy and sustainable development. Here we will just add that eorts on sustainable
development and energy must be fully integrated into the U.S.-Mexico economic dialogue. The U.S.-Mexico border region
should be prioritized and developed as an example for the world of what is possible in terms of international cooperation for
sustainable development. A council led by high level ocials from the economic and environmental agencies in both countries
should be formed with a mandate to create a comprehensive sustainable development strategy for the border region,
integrating approaches to water management, economic development, energy, and mobility.
Migration and drug policy are traditionally discussed by security ocials insofar as they form part of the bilateral agenda, yet
each has important economic dimensions, and the inclusion of economic ocials in the dialogue may open new areas for
cooperation. In the case of migration, the link is apparent, as the majority of migrants in the region are at least in part seeking
better work opportunities. U.S.-Mexico and North American cooperation to support economic development in Central America
could go a long way toward addressing the root causes of emigration from the Northern Triangle, and a regional dialogue
on the temporary movement of workers may open up spaces for the consideration of legislative action on the issue within
the United States. Marijuana has historically been bought and sold in the black market, outside of the purview of economic
regulators, but that dynamic is changing across North America. Canada has legalized recreational marijuana; Mexico is in the
process of doing so, and despite federal restrictions, several U.S. states have also created legal marijuana markets. While the
creation of a North American marijuana market will not be possible until U.S. federal law changes, there may be opportunities
to begin a dialogue to share best practices on regulatory frameworks and a future in which this market includes international
trade in the region.
Conclusion and Summary Recommendations
The United States and Mexico face an economic outlook that is at once challenging and promising. With the USMCA in
place and the COVID-19 vaccination rollout underway, two of the largest sources of uncertainty hovering over the regional
economy are clearing, oering hope that pent up consumption and investment may be on the horizon. Still, COVID-19 has
left a trail of destruction in its wake — businesses shuttered, evictions pending, and elevated levels of poverty. Political forces
in both countries make an inward, domestic-rst posture quite appealing right now, but to do so at the expense of regional
cooperation across North America would be a mistake. Only together can North America rise to the challenge of growing
international competition. Policies to address structural issues in each economy can and should be complementary to regional
economic collaboration. In so many ways, the United States and Mexico already share a regional economy, and in the wake of
crisis, they must work together to rebuild an even stronger, more inclusive and more competitive region.
Economy and Trade Group
Álvaro Santos Gordon Hanson
Christopher Wilson María Ariza
Sergio Alcocer Patricia Armendáriz
Juan Carlos Baker Renee Bowen
Earl Anthony Wayne Augusto Arellano
Enrique Dussel Viridiana Ríos
Beatriz Leycegui Santiago Salinas
Antonio Ortiz Mena Javier Treviño
This paper has been developed through a collaborative process and does not necessarily reect the views of any individual
participant or the institutions where they work.
Migration and drug policy are traditionally discussed by security ocials
insofar as they form part of the bilateral agenda, yet each has important
economic dimensions, and the inclusion of economic ocials in the dialogue
may open new areas for cooperation.
“
Center for U.S.-Mexican Studies
U.S.-MEXICO
FORUM 2025
USMEX.UCSD.EDU
