Mexico Bets on Domestic Production After USMCA Review Deal

Mexico's federal government is advancing an import substitution strategy focused on pharmaceuticals, semiconductors, and automotive manufacturing after the United States declined to extend the USMCA, triggering the treaty's annual review mechanism. The plan, led by Economy Minister Marcelo Ebrard, seeks to replace imported goods with domestic production while preserving the trade framework that anchors North American commerce. The strategy matters for automakers, pharmaceutical producers, semiconductor investors, and exporters navigating trade uncertainty, as GDP forecasts for 2026 are trimmed to near 1.1%.

Mexico's federal government is rolling out a strategy to strengthen the national economy by expanding domestic output in pharmaceuticals, semiconductors and automotive manufacturing, Minister of Economy Marcelo Ebrard announced, as the country moves forward with trade negotiations with the United States under the new annual review framework of the USMCA.

The plan, presented one day after the sixth anniversary of the trade agreement's entry into force, aims to gradually replace imports with locally manufactured goods in sectors the administration considers strategic, while preserving the treaty that anchors North American commerce.

"We are working so that the vehicles that are currently imported for the domestic market are produced in Mexico," Ebrard said during President Claudia Sheinbaum's morning press briefing.

To cut reliance on foreign inputs, the Ministry of Economy is targeting a larger national supply of pharmaceutical raw materials. Mexico currently manufactures 82 active pharmaceutical ingredients (API), and the government is coordinating with industry players, the Federal Commission for the Protection Against Sanitary Risks (COFEPRIS) and Minister of Health David Kershenobich to broaden that capacity, an effort that includes projects such as the US$2 billion pharmaceutical investment planned with Canadian partners in Hidalgo.

On the technology front, the administration is designing a policy to draw capital into data centers and electronic components, leveraging the international companies already operating in the country. Sheinbaum recently led meetings with firms in the sector to speed up new manufacturing projects, Ebrard recalled.

The automotive industry is the third pillar of the strategy. The minister said one of the government's priorities is to progressively swap imported vehicles sold in the domestic market for units built in Mexican plants. He pointed to General Motors, which plans to produce in Mexico models that currently arrive from Asia, including the Aveo, with the transition scheduled between 2026 and 2028. Other automakers are preparing similar announcements, he added. In GM's case, the company is expected to stop importing roughly half of the vehicles it currently brings from China, a shift aligned with Washington's push to reduce Chinese content in North American vehicles ahead of the treaty talks.

“If we want to reduce the trade deficit, we need to produce more in North America, that is, in the United States, Mexico and Canada, so as not to import so many things,” Ebrad stated.

Ebrard Rejects Stagnation Diagnosis

Asked about analyses warning of an economic slowdown tied to trade uncertainty, including recent downgrades to Mexico's 2026 GDP outlook, with IMEF trimming its projection to 1.1% and BBVA to 1.2%, Ebrard dismissed that reading. He said the government has worked continuously with the private sector throughout the talks with Washington and that the country's main business organizations hold a different view.

"The main concern was the risk that the treaty would no longer be in force and that we would have to negotiate another one under difficult conditions. That did not happen," he said.

The minister also stressed Mexico's position relative to other trading partners of the United States. "Imagine, 189 countries are waiting to be told what tariffs will be applied to them," he said, noting that leaving the treaty requires only a six-month notice and that this step has not been taken because of the scale of trilateral trade, which would impose costs on the US itself.

US Declines Extension, Mexico Downplays Impact

Following a trilateral meeting held via Zoom, in which each government set out its position on the treaty's future, the United States opted not to extend the agreement at this stage. The decision triggers the annual review mechanism, a scenario Mexico had prepared for as its fallback position, rather than an early extension.

Despite that outcome, Ebrard downplayed its impact. The agreement "is the same, remains in force, and we do not expect substantive modifications," he said. Mexico, he added, will keep pushing for the pact to be preserved within the new trade framework, with the goal of securing the best possible position for the country.

Sheinbaum argued that the annual review scheme agreed with Washington does not create uncertainty for investors but rather reinforces legal and economic stability for the region, where 

"First, the treaty stands, number one, very important. Number two, at any point between now and 2036, the three governments can say: it is extended for 16 more years. It is not that it lasts 10 years and then it is over; at any moment it can also be extended for another 16 years," the President said.

She clarified that the review process responds to Washington's trade strategy and is not tied to security matters, the judicial reform or other items on the bilateral agenda. She also pointed to the peso's stability against the dollar, noting that markets had anticipated the US position and that "there is no nervousness."