US tax plans threaten Mexican manufacturing

Subject

Impact of US tax plans on Mexico.

Significance

US tax reforms have put Mexico’s competitiveness under pressure, slashing US corporate income tax and creating additional incentives for capital-intensive investments. The new rules are especially relevant for manufacturing firms which form Mexico’s largest source of foreign direct investment (FDI) but are the recipients of the some of the plan’s most generous benefits.

Impacts

• The tax plan may accelerate more capital-intensive, highly automated manufacturing investment in the United States.
• The erosion of Mexico’s tax advantage will reinforce pressure to keep wages low, exacerbating political tensions.
• Pressure from Mexican business for a parallel tax cut is likely to mount as the elections approach.