Can Plan Mexico Revive Nearshoring?

Eighteen months ago, nearshoring was the buzzword throughout Mexico’s business media. Now, however, enthusiasm about nearshoring has waned. First, the approval of constitutional reforms spooked the private sector; then, US tariffs cooled investor sentiment.

In 2025, however, the Sheinbaum administration has been trying to reignite the buzz by devoting significant attention to Mexico’s new economic promotion strategy: Plan Mexico. President Claudia Sheinbaum has been successful in placing Plan Mexico at the top of the country’s policy agenda, but will this strategy be effective? Will Sheinbaum’s plan spark renewed enthusiasm for nearshoring, and crucially, will it leverage Mexico’s strategic position in the global trade arena? 

While the strategy is a welcome step and will support the investment landscape, in the short term, it is unlikely to offset the stronger headwinds posed by US protectionism and domestic institutional risks.

Plan Mexico is a comprehensive set of policies aiming to leverage the country’s position in an evolving trade landscape shaped by two structural trends: The growing US-China rivalry and the rise of economic protectionism. The Plan states 13 goals that can be summarized into two strategic purposes. One is to attract capital leaving China to avoid geopolitical risks and secure access to the US market, reigniting nearshoring. The second is to strengthen Mexico’s domestic consumption, increasing protectionism and reducing dependence on external demand for economic growth. Given the breadth of the Plan, in this article we focus on its ability to revive investment. 

To achieve its strategic goals, the Plan lays out 18 policies encompassing fiscal incentives, infrastructure development, import substitution, red-tape reduction, financing for small and medium enterprises (SMEs), among others. Some of these policies will have a positive impact on the private sector and economic growth. Others, however, echo AMLO-era initiatives and risk becoming costly policy white elephants with limited practical benefit, particularly in the agriculture and energy sectors. While the Sheinbaum administration still needs to define many of the policies under the Plan, six months after its announcement, we can begin assessing their potential implications.

For example, the investment promotion component has concrete policies, like fiscal incentives for capital investments. Earlier in the year, Sheinbaum issued the “Nearshoring Decree,” offering MX$30 billion (US$1.6 billion) in fiscal incentives through accelerated depreciation and additional tax cuts for R&D activities. Moreover, the federal government is reducing red-tape processes by 50%, consolidating VAT and IEPS exemptions in one application under the IMMEX 4.0 program.  

Another key item is the creation of industrial clusters labeled as “welfare poles” or “polos de bienestar.” These clusters are strategically located areas linked to each region’s industrial orientation. For example, the recently announced cluster in San Jose de Chiapa, Puebla, will be destined for advanced manufacturing, building on the region’s automotive base. Companies investing in these clusters will be able to deduct 100% of new fixed asset investments in the year they are made, improving their cash flow during the initial investment phase.

These incentives could have a positive impact on investment and are certainly welcome in the current economic environment. Besides, the industrial clusters approach may help to decentralize investment, economic growth, and development. However, not all industrial clusters are likely to be equally successful.

Capital typically arrives in regions that facilitate their operations with appropriate institutional frameworks, sufficient infrastructure, and input availability, such as energy, labor, water, among others. To maximize the impact of its fiscal incentives, the government must improve the operating conditions, particularly in the least developed states. Without successful infrastructure, security, and other complementary policies, industrial clusters may end up repeating an old pattern: Advanced regions receive the most investments while the least developed regions are overlooked.

As history demonstrates, successful free economic zones, like those in Shannon (Ireland), Singapore, and Shanghai, offer efficient governance and good infrastructure. Mexico’s strategic location remains a key advantage, yet weaknesses in governance and policy persist, now compounded by looming pressures on the rule of law as the country undergoes a contentious judicial overhaul.

While Plan Mexico includes infrastructure policies, the government’s spending ability will remain limited in 2025-2026. The growing fiscal deficit and the pressure to maintain social spending will constrain resources for infrastructure development. Public-private partnerships can help to overcome this challenge, but the Sheinbaum administration has yet to consolidate this front, and the recent constitutional reforms have dented investors’ confidence.

Economic, political, and legal stability will remain the main pillars of investment promotion. In the 21st Century, Mexico has succeeded in creating macroeconomic discipline despite its low levels of growth. However, political continuity has been inconsistent, reducing policy impact and efficient resource management. Today, the biggest challenge for Mexico’s investment potential is the ongoing transition to a new judicial system; a perilous experiment with minimal chances of improving the rule of law. 

Another decisive factor for luring investments will be the US-Mexico trade relationship and the reconfiguration of the global trade landscape. Despite efforts to diversify Mexico’s trade relations, its reliance on its northern partner remains crucial. Without privileged access to the US market, Mexico’s position would erode significantly. Fortunately for Mexico, the US protectionist agenda is targeting partners and rivals across the board, so even if tariffs harm Mexican exports, Mexico could still maintain an edge over its competitors. 

Therefore, in the short term, Plan Mexico is unlikely to compensate for the local and global economic headwinds, and its impact will be limited. Still, it represents a positive development. It is a telling indicator of Sheinbaum’s willingness to collaborate with the private sector. Moreover, the fiscal incentives could mitigate current investment headwinds, and its industrial clusters may help decentralize investment and employment creation. However, to move beyond narratives and good intentions, the government must carefully follow a policy cycle: grounding the plan in sound technical design, ensuring disciplined implementation, and committing to transparent monitoring and course correction.