FDI Capital Grows Cautious; Mexico Awaits Clarity on USMCA

FDI in Mexico reached record nominal levels in early 2026, but nearly all inflows came from reinvested earnings rather than new capital, with fresh investment declining 13% year-over-year amid uncertainty over the USMCA's shift to annual reviews. Manufacturers in automotive, apparel, and industrial parts are actively evaluating relocation to Vietnam and other Asian markets as an unresolved trade framework and Mexico's 2024 judicial reform weigh on long-term capital commitments. The outcome of subsequent USMCA review cycles will be a key determinant of whether nearshoring-driven investment in Mexico accelerates or continues to stall.

A hesitation is spreading across Mexico's manufacturing base. More than a dozen executives told Reuters they are reassessing investment plans, and in some cases actively drafting proposals to relocate operations to Asia. Three auto-parts firms based in Aguascalientes said they are weighing a move to Vietnam, whose auto components sector has expanded briskly over the past decade with the entry of Japanese, Korean and European manufacturers. Two executives at multinational companies separately described entering a "wait and see" phase, pausing decisions until the trade pact's future becomes clearer.

Annual Reviews Replace Long-Term Certainty

The unease traces back to July, when the United States declined to renew the USMCA outright and instead adopted a system of annual reviews. That arrangement, confirmed after Washington chose not to lock in a 16-year extension, leaves companies unable to count on a stable tariff environment from one year to the next. The review process replaces long-term certainty with recurring negotiations that could shape investment and industrial-location decisions for years to come, even though the treaty itself remains legally in force until 2036.

Not everyone reads the change as purely negative. Mexico Business News has also reported that the pivot to annual check-ins may reduce the kind of brinkmanship that dominated the eighteen months before the July 1 review, when repeated tariff threats and withdrawal talk froze production planning. Fitch Ratings has nonetheless warned that a prolonged stretch of annual reviews could still cloud the long-range visibility investors need, after trade uncertainty already contributed to a sharp contraction in Mexico's fixed investment during 2025.

Layered on top of the trade question is Mexico's 2024 judicial overhaul, which swapped appointed judges for elected ones. For companies weighing multi-year capital commitments, that combination, an unsettled trade framework plus a reconstituted court system, has been enough to push some toward a defensive posture, according to Pedro Casas, Head, American Chamber of Commerce in Mexico, which represents more than 1,450 US and Mexican firms. Casas has argued that a cycle of constant renegotiation through next July would leave companies with little choice but to look elsewhere, since prolonged ambiguity is itself a deterrent regardless of how the review ultimately resolves.

The Numbers Behind the Hesitation

The caution shows up clearly in the investment data. Mexico logged nearly US$35 billion in FDI during the first half of 2026, a record for the period. But the figure is misleading on its own: almost all of it came from companies reinvesting earnings already generated inside the country, with new capital accounting for just 7.8% of the total. Fresh foreign investment actually fell 13% compared with the same period last year. Greenfield investment, spending on entirely new plants and facilities, dropped by nearly half in 2025 to US$24 billion, per UNCTAD figures.

That split between reinvestment and new commitments lines up with Mexico Business News' broader reporting on the country's FDI trajectory, which has noted that even as headline investment figures hit historic levels in the 1Q26, the review of the USMCA and shifting US trade policy continue to leave investors cautious about committing to entirely new projects.

Government Response and Export Resilience

President Claudia Sheinbaum's administration has leaned on its "Plan México" strategy to argue the economy remains resilient despite the trade friction. Economy Minister Marcelo Ebrard has gone further, pushing an import-substitution push in pharmaceuticals, semiconductors and automotive manufacturing designed to replace imported goods with domestic production while preserving the North American trade framework. General Motors, for instance, plans to begin building in Mexico several models currently shipped in from Asia, with the transition running through 2028.

The automotive sector illustrates both sides of the story. Washington is pressing for tighter rules of origin and reduced reliance on non-North American inputs, particularly from China, as part of the review ,a shift that could raise production costs even as Mexico's proximity to the US keeps drawing manufacturers looking to shorten supply chains away from Asia.

For now, exports are doing the heavy lifting for growth. Mexico's economy expanded 1.4% in the 2Q26, its strongest showing since early 2022, driven largely by shipments of computers, servers and AI-related processing equipment to the United States. Banco de México's August quarterly report struck a similar note of qualified optimism, projecting moderate export growth while cautioning that the absence of a definitive resolution on the treaty's future remains an adverse factor for investment decisions. Roughly 80% of Mexican exports go to the United States and nearly 89% of the US$1.5 billion in daily cross-border goods trade moves under USMCA's umbrella, underscoring how much is riding on whatever the next review produces.