Mexico is likely to be the main beneficiary of President Donald Trump’s trade war, and the country’s nearshoring prospects are gaining renewed momentum, according to two recent reports.

Uber Freight’s Q2 Market Update reports that, while the U.S. has imposed new tariffs of up to 25% on imports from Asia, particularly targeting Chinese goods, Mexican exports remain largely exempt, with over 90% of shipments to the U.S. qualifying for tariff-free treatment. Mexico has unique, strategic advantages under the United States-Mexico-Canada Agreement (USMCA) and a favorable trade environment, “This positions Mexico as a reliable alternative for companies seeking to reduce exposure to trade friction and long lead times from overseas markets,” the report’s authors said.

This favorable setting has regained interest from global manufacturers, including automotive leaders such as BMW, Volkswagen, and Mercedes-Benz, who are exploring expansions in Mexico to take advantage of USMCA benefits and avoid U.S. tariffs on non-originating goods. “As a result, Mexico’s role in North American supply chains is becoming increasingly strategic,” the  Uber Freight report, released June 6, said.

Meanwhile, a new report from Bank of America showed that while higher import taxes pushed by President Donald Trump may bring some manufacturing back to the U.S., the policy is more likely to create even more production opportunities for nearby countries like Mexico, reports Investopedia. 

“Nearshoring, or friendshoring, appears much more likely to benefit from tariffs this time around,” the June 5 BofA report said. “Mexico is considered to be a net beneficiary from the [move] from cost efficiency to geopolitical risk management.” 

Financial analysts argue that Mexico faces less protectionist pressure than other U.S. trade partners due to its deep integration with the American market, Uber Freight said.

However, the picture is not all roses. The development of nearshoring in Mexico is tempered by the reality of the drought experienced in the country, according to the International Bar Association. Global risk intelligence company Verisk Maplecroft’s Water Stress Index has identified Mexico as among the 50 most water-stressed nations on earth. There are also shortfalls in infrastructure, power and fuel, including natural gas. 

Mexico’s Ministry of Infrastructure, Communications and Transportation (SICT) estimates that a $400 billion infrastructure investment is required by 2032 for the country to be able to handle the volume of traffic brought by nearshoring operations and the related challenges faced by ports, border crossings and railways.

Further, investor bodies such as Moody’s have warned that a controversial 2024 judicial reform will create uncertainty about the legal security of doing business in the country.

Read More: Mexico: Battleground for Trade in the U.S.-China Trade War

Within Mexico, although tariffs have raised prices in select product categories, their broader inflationary effect has been muted, in part because Banco de México reduced the benchmark interest rate to 9.00% in March, its lowest level since September 2022.

However, analysts warn that prolonged trade frictions could produce lasting macroeconomic impacts on the country. While USMCA-eligible goods remain exempt from reciprocal tariffs, non-compliant products are now subject to a 10% tariff. In parallel, the U.S.A. imposed a 25% tariff on Mexican steel and aluminum exports, deteriorating investor confidence, and disrupting key manufacturing supply chains. Sectors such as automotive, electronics, and agriculture are particularly exposed, the Uber Freight report said.