Chinese Investment in Mexico: Trade Wars, Nearshoring, and Place-Based

Agustina Giraudy (), Ernesto Stein (), Francisco Urdinez () and Victor Zuluaga ()
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Agustina Giraudy: American University and School of Social Sciences and Government, Tecnológico de Monterrey
Ernesto Stein: Tecnologico de Monterrey
Francisco Urdinez: Pontificia Universidad Católica de Chile
Victor Zuluaga: Banco de México

No 11, Working Paper Series of the School of Government and Public Transformation from School of Government and Public Transformation, Tecnológico de Monterrey

Abstract: This paper investigates the impact of the first Trump administration's (2016-2022) US-China Trade War on the sectoral composition and geographic allocation of Chinese foreign direct investment (FDI) in Mexico. Leveraging a novel dataset of Chinese investment projects (2001-2024) and exploiting product-level variation in US tariff exposure, we implement a difference-in-differences design to identify causal effects. The analysis reveals three key findings. First, Chinese firms responded to increased US tariffs by relocating production to Mexico (i.e., nearshoring), with sectors more exposed to the Trade War (that is, receiving larger tariff hikes) having significantly higher Chinese FDI inflows. Second, these effects emerge with a lag of approximately three to five years following tariff imposition. Third, place-based policies significantly influenced the geography of Chinese investment: Mexico's Zona Libre de la Frontera Norte program altered the relative attractiveness for Chinese FDI of the affected regions compared to others. The findings highlight how global trade disputes interact with place-based policies to shape investment patterns, offering lessons for developing economies seeking to attract nearshoring FDI while balancing employment and regional development objectives

Keywords: Foreign Direct Investment; Trade War; Nearshoring; Mexico; China; Place-based Policy (search for similar items in EconPapers)
JEL-codes: F13 F14 F21 F23 O19 P33 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2025-10
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https://egobiernoytp.tec.mx/sites/default/files/20 ... e-Based_Policies.pdf First version, 2025 (application/pdf)

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