USMCA annual review reshapes Latin America's nearshoring outlook

Latin America refined about 20% of key energy minerals in 2025, IEA finds

The shift took effect July 1, when Washington declined to renew the trade pact’s 16-year horizon at the United States-Mexico-Canada Agreement’s first mandatory review and substituted annual reviews in its place, according to economist César Addario Soljancic, the source article’s author. Mexico and the United States have separately held a third bilateral negotiating round and are preparing a fourth in Washington, with automotive rules of origin still unresolved. The change removes the long planning horizon companies have used to justify multi-year factory siting decisions, reintroducing policy risk into investment cycles that often span multiple electoral calendars.

The size of the prize has been estimated at $78 billion a year in additional exports of goods and services for Latin America and the Caribbean, according to a 2022 Inter-American Development Bank study. Mexico alone accounts for roughly $35.3 billion of that estimate, with Brazil at about $7.8 billion. The IDB has cautioned that the figures describe export potential rather than guaranteed investment, and past external booms have failed to produce lasting structural change. The U.N. Economic Commission for Latin America and the Caribbean projects regional growth of just 2.2% in 2026.

The IDB has separately estimated that a 10% increase in a country’s participation in global value chains is associated with an 11% to 14% rise in per capita GDP, a relationship that sets the stakes for what nearshoring could deliver. Nearshoring differs from prior commodity cycles, the source analysis argues, because it could draw the region into manufacturing, services and global production networks rather than concentrating on raw materials alone.

Mexico is best positioned for that transition because it borders the world’s largest consumer market and already operates deep automotive and electronics supply chains. Foreign direct investment in Mexico reached a record $40.9 billion in 2025, according to Mexico’s Economy Ministry. About two-thirds of that figure was reinvested earnings from companies already in the country, although new investment more than doubled from 2024. The question, the source analysis argues, is no longer whether Mexico can benefit; it is whether electricity, water, customs infrastructure and public security can keep pace.

Beyond Mexico, Costa Rica has spent more than two decades building a quieter but highly successful version of the nearshoring model around medical devices and corporate services. Colombia brings ports on two oceans and a growing services economy. Brazil faces a different equation: its distance from the United States reduces its geographic edge, but its industrial base and increasingly renewable electricity grid open opportunities in energy-intensive manufacturing.

South America also holds a strategic advantage in geology. Chile remains one of the world’s dominant copper producers and a major source of lithium. Argentina is rapidly expanding lithium production. Peru ranks among the largest copper producers. The International Energy Agency’s Global Critical Minerals Outlook 2026, released in July, found that the region could capture about $185 billion in economic value from critical minerals by 2035.

The decisive question is how much of that value remains in the region. Latin American countries refined only about 20% of the key energy minerals they extracted in 2025, excluding lithium, according to the IEA data cited in the source material. The agency expects only one-fifth of the $185 billion total to come from refining under current trends, and calculates that a scenario with substantially more local processing would lift the total to roughly $220 billion. If the region merely exports concentrates for processing elsewhere, the energy transition risks becoming another commodity boom.

Constraints are familiar. Ports, transmission lines and reliable power often determine whether an investment announcement becomes an operating factory, and for Mexico the capacity limits include water supply and customs infrastructure alongside electricity. The IDB has estimated that every dollar devoted to investment promotion can generate nearly $42 in foreign direct investment, but promotion alone is insufficient without the underlying physical groundwork.

Security is another constraint. Private-sector economists surveyed by Banco de México have repeatedly ranked public insecurity among the main factors that could hold back Mexico’s growth. Regulatory stability matters as well. Nearshoring investments are long-term bets, and companies must believe that taxes, permits and contracts will remain predictable after political transitions and, now, after each annual trade review.

Latin America is not alone in pursuing the same factories. India, Vietnam, Eastern Europe and the United States itself are competing for the same capital. Proximity is an advantage, not an exemption from that competition.

The ECLAC has projected regional growth of 2.2% in 2026, the baseline against which any nearshoring dividend will be measured. The outlook, the source analysis argues, is conditional: Mexico is likely to capture a large share of the gains from reorganized North American supply chains if the trade review ends in stable rules. Costa Rica and its Central American and Caribbean neighbors can keep winning specialized niches if they maintain legal certainty. South America’s mineral producers face a harder test, since copper and lithium alone will not transform their economies without processing capacity, reliable energy and fiscal policies that treat commodity revenues as temporary.

Otherwise, the $78 billion nearshoring opportunity risks remaining a figure in a presentation, the source warns. Growth will fall back toward 2%, and the region will begin the same debate again. Nearshoring and critical minerals do not have to become another commodity boom, the source argues; they offer Latin America an opportunity to move beyond one, and the difference will be visible in the factories that get built and in export baskets that carry more value added.

Latin America is already close to the markets and resources that matter. Closeness has never been the scarce ingredient.

Execution has.

César Addario Soljancic (www.cesaraddario.com) is an economist specializing in public finance, with decades of experience advising governments and institutions across Latin America and the Caribbean. Over his career, he has led 69 capital-market issuances across 13 countries, totaling nearly $49 billion. The views expressed are solely those of the author.