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

Author

Listed:
  • Agustina Giraudy

    (American University and School of Social Sciences and Government, Tecnológico de Monterrey)

  • Ernesto Stein

    (Escuela de Gobierno y Transformación Pública, Tecnológico de Monterrey)

  • Francisco Urdinez

    (Pontificia Universidad Católica de Chile)

  • Victor Zuluaga

    (Banco de México)

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

Suggested Citation

  • Agustina Giraudy & Ernesto Stein & Francisco Urdinez & Victor Zuluaga, 2025. "Chinese Investment in Mexico: Trade Wars, Nearshoring, and Place-Based," Working Paper Series of the School of Government and Public Transformation 11, School of Government and Public Transformation, Tecnológico de Monterrey.
    • Handle: RePEc:gnt:wpaper:11
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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • P33 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid

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