By Diego Oré and Emily Green
MEXICO CITY, Sept 1 (Reuters) - When Randy Carr opened a factory in central Mexico in 2005, he was drawn by the country’s low wages and free-trade agreement with the United States. Over the next 20 years, the plant, which produces embroidered patches and custom emblems, grew into an 800-worker operation.
But in 2025, after U.S. President Donald Trump began threatening tariffs on Mexico and Canada, Carr quickly moved to diversify. He set his sights on the Dominican Republic.
“It all started with the February decision to hit Mexico and Canada with 25% tariffs,” he said. “The writing was on the wall.”
Mexico has so far largely escaped the heaviest of Trump's sweeping tariffs that have fueled a bitter trade dispute with Canada and other U.S. allies. But Trump has repeatedly attacked the U.S.-Mexico-Canada free trade pact known as USMCA, and in July Washington declined to renew it, instead opting for annual reviews, leaving companies unsure what tariff regime they may face from one year to the next.
The uncertainty is deterring new investments and prompting some companies already in Mexico to proactively look elsewhere. More than a dozen business leaders told Reuters that they are reconsidering their investment plans, in some cases drawing up proposals to pull out of Mexico and relocate to Asia.
Compounding their concerns is Mexico's sweeping 2024 judicial reform, which replaced appointed judges with elected ones, unsettling companies worried about the rule of law.
NEW INVESTMENT WOBBLES
Executives from three auto parts companies, all based in the central state of Aguascalientes, told Reuters they are considering leaving Mexico and relocating to Vietnam, whose auto parts industry has expanded rapidly over the past decade with the arrival of Japanese, Korean, and European automakers. They spoke on condition of anonymity to discuss internal business considerations.
Two other executives from multinational companies told Reuters they were reassessing their projects in Mexico and had entered a "wait-and-see" phase while the future of the trade pact became clearer.
"If we are going to have a constant renegotiation until July of next year, let's just turn off the lights, close the doors and go invest somewhere else because that’s just pure uncertainty," said Pedro Casas, CEO of the American Chamber of Commerce of Mexico, which represents more than 1,450 companies in the U.S. and Mexico.
The USMCA trade pact is essential for Mexico’s economy: some 80% of all Mexican exports go to the U.S. and nearly 89% of that daily $1.5 billion worth of goods fall under the treaty's umbrella.
Overall foreign direct investment in Mexico hit a record high of nearly $35 billion in the first half of 2026, according to preliminary numbers.
But almost all of that came from reinvested earnings, with just 7.8% representing new investments. Preliminary data shows new foreign investment fell 13% in the first half of 2026 from a year earlier — a sign that Mexico may be struggling to attract fresh capital.
Greenfield investment in Mexico, a measure of foreign spending on new factories and warehouses, fell by nearly half to $24 billion in 2025 from the previous year, according to the latest figures available from the United Nations Conference on Trade and Development.
"If you are already in Mexico and have a plant, investing in machinery and equipment to produce more makes sense," said Carlos Serrano, chief economist at BBVA Mexico. "But if you are a new firm, and you see all this uncertainty, not only with USMCA but also the judicial system, you will not build a new plant."
GROWING EXPORTS
Mexico’s President Claudia Sheinbaum has maintained that the country's economy remains resilient despite the trade tensions with the United States. She has championed what she calls "Plan Mexico," an ambitious strategy that seeks to revitalize manufacturing in Mexico and boost domestic industries.
Mexico’s economy grew 1.4% in the second quarter, its fastest pace since early 2022. Much of that strength has come from exports of computers, servers and other AI-related data-processing equipment to the U.S., highlighting Mexico's continued dependence on its neighbor to the north and their free trade agreement.
While that's a boon for Mexico’s economy, it has driven the U.S. trade deficit with Mexico to record levels — which could backfire politically, given Trump’s stated mission of reducing trade imbalances with friend and foe alike.
Mexico’s central bank, in its August quarterly report, said exports are expected to expand moderately in the near future, noting that the terms of the USMCA are still in effect.
But, it noted, "the lack of a definitive resolution regarding its future remains an adverse factor for investment decisions."
Carr’s business, World Emblem, opened its new plant in the Dominican Republic in June and currently employs about 25 people, with plans to hire more. The lower costs and generous tax incentives offset the 10% U.S. tariff on imports from the country, he said.
Simultaneously, Carr plans to shrink the company’s 800-employee footprint in Mexico by half through attrition.
"It's a hedge," he said. "We just have too much at stake right now in Mexico."
(Reporting by Diego Oré and Emily Green, Editing by Rosalba O'Brien)
