Mexico can turn USMCA pressure into an industrial opportunity
When US President Donald Trump imposed a series of tariffs on Mexico in the early months of 2025, citing fentanyl trafficking and illegal immigration across the border as the primary justification, few analysts would have predicted that Mexican exports to the US would increase. Yet a year later, that is exactly what has happened.
Although the US slapped 25 percent tariffs on exports that did not comply with the United States-Mexico-Canada Agreement (USMCA) and additional tariffs on Mexico’s auto, steel, and aluminum sector regardless of origin status, Mexican exports to the US are booming. In fact, they reached an all-time high of $545 billion in 2025, according to US Census data—an increase of 5.8 percent over 2024.
This remarkable development has been driven largely by the explosive growth of a single export category: data processing machines. But that success may prove short-lived. With the Trump administration announcing that it will not renew the USMCA in its current form—and floating stricter rules of origin for these and other goods—the sector could soon become a flash point in US-Mexico relations.
The AI boom has transformed Mexico’s export landscape
Over the past year, Mexico’s exports of servers—classified under tariff code 8471.50—have grown by 179 percent, displacing vehicles as the number one export to the US for the first time. This tremendous growth has been driven largely by the surge in US investment in data centers that began in late 2022, following the launch of ChatGPT. Firms in Mexico, such as Celestica, Foxconn, Lenovo, Quanta, and Wistron, not only kept pace with rapidly rising US demand for these products but outpaced suppliers in other countries, allowing Mexico to capture a large share of the market.
Now that USMCA revision discussions are underway, however, the US appears to be seeking stricter rules of origin across several sectors, including higher regional value content (RVC) requirements in autos and beyond, as part of an effort to boost US manufacturing and reduce dependence on Asia.
The obvious Mexican response, of course, would be to push back on new RVC requirements across the board. Why jeopardize the industry that has been a lifesaver for its exports sector? Yet the reality is more nuanced. In fact, a carefully designed proposal to introduce RVC requirements into the rules of origin for the electronics sector could serve both Mexico’s development agenda and US efforts to build more resilient supply chains.
A booming sector built on foreign inputs
The underwhelming reality is that domestic value added in Mexico’s data processing sector remains very low. For this reason, despite its impressive growth, it does not have the same positive spillover effects—in terms of jobs, investment, or supply chain development—that are seen in the automotive sector. As Mexican exports have soared, so have imports of inputs from Asia.
During a recent trip in Mexico, we visited firms producing AI servers, precisely the type of product that has driven the sector’s expansion. Executives at one of the companies explained their highly sophisticated supply chain, which includes more than two thousand suppliers. We asked how many of them were Mexican. The answer was none—except for suppliers providing packaging, transport, and services.
So how can exports of servers and other data processing units be soaring with such low national—and regional—value added? Mexican vehicles and auto parts require 75 percent RVC in order to qualify for USMCA benefits. Do these other products not also have to comply with rules of origin? As a matter of fact, they do. But here is the catch: not all rules of origin are created equal.
In fact, most products covered by USMCA do not have specific RVC requirements, which demand that a certain share of a product’s value must come from North America. Instead, their primary criterion for complying with rules of origin is what is known as a change in tariff classification (CTC). This type of rule says that a product counts as “made” in North America if its non-regional inputs are “transformed” enough to fall under a different Harmonized System (HS) tariff category.
This practice of assembling goods with little or no regional inputs—where the finished product is considered sufficiently transformed by virtue of the assembly process—is perfectly permissible. It is neither a violation of USMCA nor a nefarious attempt to circumvent the intent of the rules. In fact, the rules were created deliberately to attract this type of manufacturing to the region. The assembly of high-tech products is itself a sophisticated process that adds meaningful value to production, and it has generated substantial investment and created jobs. Still, the lack of domestic value added in the sector significantly limits its broader development potential when there are no local inputs. Updating these rules could help encourage the sector to “move up the value chain” by requiring more local suppliers.
To understand how the CTC rule operates in practice, AI servers—which have been the single largest contributor to Mexico’s recent export growth—provide a useful example. Under the standardized numerical system created and maintained by the World Customs Organization, these servers fall under HS code 8471.50. The corresponding rule of origin for that code requires a CTC, but with an unusually narrow exception: non-originating inputs disqualify the product only if they themselves are classified under HS 8471.30, 8471.41, or 8471.49—that is, complete portable computers, desktop computers, or pre-assembled computer systems. Virtually every other input remains eligible, including components classified elsewhere within heading 8471.
Consider a typical AI server. It contains a motherboard with CPU and GPU chips (HS 8473.30), DRAM memory (8542.32), a power supply unit (8504.40) and a chassis (8473.30). Because none of these components fall within the three excluded subheadings, the finished server qualifies as USMCA-compliant—even if all the inputs originate in China.
It is therefore no wonder that local value added in this sector is so low. The current USMCA places almost no pressure on manufacturers to build regional supply chains.
Stronger rules of origin could help Mexico move up the value chain
The standard Mexican government position on rules of origin in the USMCA revision process has been to preserve the existing framework. This may make sense for some sectors, such as autos, where already high requirements could hurt competitiveness if pushed even higher. For other sectors, however, Mexico may benefit from reconsidering this position—not only addressing US objectives but also advancing its own development objectives. One of the main stated goals of Plan México, the administration’s vision for long-term economic growth, is to substitute imports from Asia—and particularly from China—with greater domestic value added through Mexican-made inputs in production and exports. Introducing even a modest RVC requirement in the computer sector’s rules of origin would be a powerful tool to achieve this goal.
The US, for its part, has two key goals when it comes to USMCA negotiations: reducing supply chain dependence on Asia, particularly China, and boosting domestic manufacturing. The fact that such a measure would help decrease import dependence on China is clear enough, but a thriving and more sophisticated electronics sector just south of the border could complement US manufacturing objectives as well. For example, an RVC requirement in the sector could encourage server producers in Mexico to source chips from newly established semiconductor plants in Arizona and Texas.
For this proposal to work, however, it would need to be implemented carefully and gradually. If the USMCA partners introduced a 20 percent RVC requirement tomorrow, leading firms such as Celestica, Foxconn, or Wistron may decide to end production in Mexico and supply the US from Taiwan or Thailand, either because local suppliers do not exist or because they are too small or inefficient to meet demand at low costs. Such an outcome would achieve precisely the opposite of what policymakers intend. Instead, a requirement specifying, for example, that by 2030 RVC should reach 5 percent, followed by 10 percent by 2035, and perhaps gradually increasing thereafter, could help develop a supplier ecosystem without undermining competitiveness.
There may very well be opposition within Mexico to such an idea. Companies making servers would likely object, since, as was the case for automakers during the original USMCA negotiations—when the RVC requirement rose from NAFTA’s 62.5 percent to 75 percent—stricter rules would constrain their supply chain decisions. At the same time, just as the higher RVC requirements ultimately benefited Mexico’s auto parts industry, stronger origin requirements for electronics would likely boost manufacturers of computer components, including firms involved in printed circuit board assembly, semiconductor assembly, testing, and packaging, power supply units, and similar inputs.
This is not a novel challenge. It reflects a classic political economy obstacle in economic development policy: established incumbents that stand to lose the most in the near term often wield greater lobbying power than potential beneficiaries, many of whom are smaller, less-established, or do not yet exist. But this is not an insurmountable problem, and the presence of an external beneficiary—in this case, the US—can help drive the policy forward.
Turning US pressure into an opportunity
The prospect of opposition should not discourage the Mexican government from moving forward. A useful tactic in any negotiation is to begin by offering concessions that align with what the country should be doing anyway—starting with measures that are relatively straightforward but have been delayed for one reason or another. Next, governments can offer measures that may be politically difficult but ultimately beneficial, where an external commitment or binding obligation may provide precisely the push needed to overcome domestic resistance. A phased introduction of RVC requirements for computers and data processing equipment could represent one such measure. And since the US is likely to press for changes in rules of origin anyway, Mexico could even frame this move as a concession—offering it in exchange for tariff exemptions for USMCA-compliant exports in sectors subject to Section 232 tariffs.
Mexico’s data processing equipment sector has already gained a foothold in North American supply chains, becoming a critical component of the country’s export base. But its potential to transform the broader economy will remain limited without a deeper ecosystem of domestic suppliers. Building such an ecosystem would accomplish a strategic goal for Mexico while also supporting US trade and Washington’s geopolitical objectives. A carefully designed and gradually implemented policy could therefore benefit both countries.
Ernesto Stein is distinguished university professor of public policy at the School of Government and Public Transformation at Tec de Monterrey, a member of the US-Mexico Binational Task Force on Economic Security and Competitiveness convened by the Atlantic Council’s Adrienne Arsht Latin America Center, and director of the BBVA-Tec Center for Trade Policy and Global Value Chains for North America.
Phil Lovegren is a nonresident senior fellow at the Atlantic Council’s Economic Statecraft Initiative and is currently director for strategy and international regulatory affairs at Banca Mifel.
Housed within the GeoEconomics Center, the Economic Statecraft Initiative (ESI) publishes leading-edge research and analysis on sanctions and the use of economic power to achieve foreign policy objectives and protect national security interests.
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