Mexico’s Microchip Advantage

Since Congress passed the CHIPS and Science Act one year ago, there has been much talk about how to shift electronics and computing supply chains away from China. In addition to the rapid buildup of domestic manufacturing capacity spurred by the CHIPS Act tax credits and incentives, the intensification of China-U.S. tensions and the imposition of export controls are encouraging many multinational technology companies to relocate production and assembly outside of China. Until now, this has meant a greater emphasis on other parts of Asia: multinational firms are increasing their reliance on countries such as Vietnam and Thailand that already have a deep ecosystem of electronics suppliers, significant know-how, and low-cost workforces; and they are also investing more in India, which is seeking a prime position in the future of the electronics industry.

The focus on diversification within Asia, however, has meant that Mexico—America’s top trading partner and arguably its most important manufacturing partner—is being largely overlooked. This is a missed opportunity. The Western Hemisphere deserves more focus as Washington seeks to better secure the broader electronics supply chain. Building regional capacity offers a way to limit Asia-focused supply risks and, in the event of a major China-U.S. conflict, an intra-hemispheric supply chain would be much less susceptible to interference. Mexico would be a key place to start.

Although Mexico is not known for high-technology production, it is a critical player in major advanced manufacturing sectors such as autos, aerospace, and medical devices. The country already hosts several semiconductor assembly and packaging plants and has a high density of chip-intensive end users. Moreover, Mexico and the United States have a strong network of manufacturing relationships that could be readily adapted for some segments of the semiconductor supply chain. And its comparatively low-cost workforce is cheaper than China’s, by some measures, making investments in the country attractive for assembly work that is too costly to undertake in the United States. At the same time, unlike Asian partners, Mexico has a deep and long-standing free trade agreement with the United States that has withstood political controversy and presidential administrations of both parties. It also shares a 2,000-mile border and 48 land crossings, making it less vulnerable to logistical disruptions.

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