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U.S. companies have faced heightened challenges managing global supply chains and operations, due to a confluence of macro trends, global events and policy shifts. Nearshoring from China to the Mexico gained momentum with COVID-19 and has continued due to manufacturing cost increases in China, global conflicts and tensions, and trade policy shifts.
COVID-19
The COVID-19 pandemic exposed significant vulnerabilities in global supply chains. Lockdowns and restrictions led to factory closures, labor shortages, and transportation bottlenecks, causing widespread disruptions across various industries. Vulnerabilities to Tier 2 and 3 suppliers concentrated in China were highlighted, prompting many companies to reassess their supply chain strategies.
Landed Cost
China/ US landed costs include the labor, shipping, insurance and tariffs to manufacture products in China, Mexico or other manufacturing centers and deliver them to the US. In a notable shift in the global manufacturing landscape, China has lost the edge on landed cost attractiveness as labor costs adjusted for productivity gains growth has risen faster in China versus Mexico in the last few years. In addition, shipping, insurance, and the recent threat of increased tariffs have made China less competitive than in previous years. In addition, companies must pay attention to how IP and the cost of risk of doing business in China interplay regarding core cost and strategic considerations to have a clear picture of landed cost. Companies are increasingly determining that China is no longer the clear low-cost option for supply chains versus Mexico.
Global Conflicts
Hot wars and tensions continue in Russo–Ukrainian war, the middle east with Israel, Iran, Hamas, Syria, Yemen, the Democratic Republic of the Congo, and Sahel Region conflicts. U.S.-China tensions may continue to escalate in 2025, as the Trump administration appears ready to further decouple business and technology paths. In addition, further tensions may rise as the US seeks to counter the belt and road initiative primarily in the Americas, including Panama Canal and countering China and Russia in the Arctic and Greenland as China continues to conduct military drills near Taiwan, raising tensions with Taiwan and its allies.
Trade Policy
The United States-Mexico-Canada Agreement (USMCA) implemented in 2020, provided incentives for companies to move production back to North America, including duty-free access and trade incentives, taking advantage of reduced landed costs and close proximity to the US. The Trump administration has implemented significant tariff increases, including 25% tariff on imports from Mexico and a 20% tariff on Chinese imports as a geopolitical negotiating tool, and potentially a more permanent shift in tax policy in the US. The shifting tariff policy increases uncertainty around strategic supply chain decisions and risk.
FTO Designation of Mexican Cartels
As companies have accelerated supply chain nearshoring to Mexico, and new supply chain risk has emerged following the designation of 8 Mexican drug cartels as Foreign Terrorist Organizations (FTOs) and Specially Designated Global Terrorists (SDGTs) in February, 2025. The Cartel de Sinaloa, Cártel de Jalisco Nueva Generación (CJNG), Cártel del Noreste (CDN), La Nueva Familia Michoacana (LNFM), Cártel de Golfo (CDG), and Cárteles Unidos (CU) were added to the list, and more may follow in the near future.
Companies operating in Mexico or with suppliers based in Mexico face increased compliance as the companies can be perceived as and potentially prosecuted for aiding terrorists if they do not show adequate compliance to ensure to prevent doing business with the FTO designated organizations. The cartels are known to infiltrate supply chains including those in the automotive, electronics and other sectors. The cartels have increasingly moved into racketeering type activities in Mexico and may force or coerce suppliers and companies operating in Mexico to use their “front” entities, thereby entering multinational company supply chains. Logistics departments are often infiltrated by FTO associates, who may use the companies' shipping operations for illicit purposes. An additional risk can be seen as companies may seek to make payments to ensure employee and facility location safety which could be seen as making payments FTO designated entities, thereby opening organizations to legal action or sanctions.
Companies need to manage supply chain risks and FTO compliance issues to ensure that they are not purposefully, or through lack of due diligence, exposing themselves to criminal and civil penalties. Risk mitigation actions companies should consider taking include:
Review and update supply chain risk assessments, including mapping supply chains beyond direct suppliers
Revaluate nearshoring versus reshoring strategies and risks
Increase FTO compliance due diligence with suppliers based in Mexico
Require certification of compliance with applicable laws related to doing business with TCOs and FTOs
Incorporate compliance requirements regarding TCO’s and cartels into 3rd party contracts.
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