Mexico stands to gain from U.S. tariffs intended to boost American manufacturing, one analyst says in a new report.

Under the North American trade agreement renegotiated during President Donald Trump’s first term, products with significant value originating on the continent are considered compliant and therefore exempt from tariffs.

A GlobalData analysis identifies Mexico as the main beneficiary in reshoring of product manufacturing to North America due to its lower labor costs and a recent increase in foreign investment in the country.

It said direct foreign investment in Mexico rose 5% year-over-year in the first quarter, when the Trump administration started instituting tariffs on imported goods. In addition, Mexico passed China in 2023 in exports of goods to the U.S., GlobalData said, citing Legacy Supply Chain data.

“This indicates a growing trend of both new investments and the reinvestment of profits in Mexico, despite the presence of tariffs, suggesting that Mexican manufacturing remains a viable option,” GlobalData said in its report.

U.S. manufacturers can also shift their supply chains to maximize North American materials sourcing, the company pointed out. Many analysts have emphasized, though, that such reconfigurations can be complex and therefore rarely unfold quickly.

“Companies should observe that these strategic shifts would not necessarily deliver on the US’ aim of revitalizing its domestic manufacturing sector (since the USMCA could result in manufacturing being reshored to Mexico, not the US). This could result in the Trump Administration rethinking tariff exemptions for USMCA-compliant goods,” said GlobalData Senior Consumer Analyst Rory Gopsill.

GlobalData pointed out that the North American trade agreement is scheduled for review next year and said tweaks being discussed include changes to automotive industry materials sourcing, as well as curbs on Chinese companies operating on the continent.

“Consumer goods and packaging companies should monitor how these talks progress closely to minimize risk when adjusting North American supply chain,” Gopsill said.

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