ISF Voices 2025: Regionalizing Competitiveness in North America

The latest edition of ISF Voices.

Hello, I’m Ylli Bajraktari, CEO of the Special Competitive Studies Project. In this special edition of SCSP’s newsletter, we continue our ISF Voices series. Launched earlier this year, ISF Voices showcases writing by current fellows in SCSP’s International Strategy Forum (ISF) program. Each piece reflects the unique vantage points of emerging leaders from around the world working to shape the future of geopolitics, technology, and democracy. Today, we’re proud to feature Fausto Carbajal Glass, a 2025 ISF Fellow and Ph.D. candidate at the Mexican Institute for Strategic Studies in National Security and Defense (IMEESDN), as well as founder of Delphi Solutions and Strategic Services. In his writing, Fausto explores how the evolving U.S.–China strategic competition is reshaping supply chain strategies—and how Mexico, through targeted policy and institutional alignment under the United States-Mexico-Canada Agreement, can play a pivotal role in bolstering North America’s overall resilience and competitiveness.

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Disclaimer: The views expressed in this article are those of the author and do not reflect those of the Special Competitive Studies Project (SCSP), the International Strategy Forum (ISF), or any affiliated persons and institutions.

Strategic Reconfiguration of North American Competitiveness: Mexico's Role in Regional Value Network Integration

Supply Chains Forged by Geopolitical Competition

Amid prevailing geopolitical risks, companies and governments—regardless of political leanings—that prioritize balanced, future-proof supply chains are increasingly positioned for competitive advantage and long-term prosperity. This newsletter examines how geopolitical tensions and trade conflicts underlying the U.S.–China strategic competition have altered corporate and government supply chain strategies, shifting focus from pure cost efficiency toward resilience, redundancy, and regional integration. In doing so, this article builds on the Pooling Comparative Advantage memorandum presented by the Special Competitive Studies Project.

The intensifying competition between the United States and China, coupled with subsequent global supply chain realignment, perhaps manifests most prominently within the critical minerals sector. In this regard, China has steadily tightened its grip on critical minerals exports to the United States in recent years. Beginning mid-2023, Beijing implemented a series of strategic restrictions on minerals essential to high-tech manufacturing and clean energy technologies. First came controls on gallium and germanium, all vital inputs for semiconductors, followed by limits on rare earth processing technology access. By late 2023, China had expanded restrictions to graphite, crucial for electric vehicle batteries, and antimony, used in defense applications. Similarly, as of April 2025, Beijing placed seven categories of medium and heavy rare earths on an export control list, including samarium, gadolinium, terbium, dysprosium, lutetium, scandium and yttrium-related items.

In a surprising turn of events, following a round of U.S.–China negotiations in June, the Trump administration eased key technology restrictions on Beijing in exchange for securing access to critical minerals. The agreement notably included the resumption of Nvidia H20 AI chip sales to China, while Beijing, in turn, committed to resuming rare earth shipments to US manufacturers. While critics argue that China's access to H20 chips may elevate its technological capabilities to unprecedented levels, the agreement seems to underscore the continued dependency of the United States on Chinese mineral supplies, a strategic vulnerability that appears to have ultimately shaped this policy. In synthesis, on the one hand, these moves leverage China’s dominant position in global mineral processing chains and serve as a direct response to American semiconductor export controls. On the other hand, Beijing’s application of critical minerals restrictions represent a significant escalation in the long-term technological competition between the world’s two largest economies, threatening to disrupt crucial supply chains for advanced industries.

Nearshoring as Regional Response

This geopolitical shift has therefore fundamentally transformed global trade patterns, further highlighting “the globalization myth” while simultaneously arguing that strategic regionalization would enhance economic competitiveness. Within this context, Mexico presents an instructive case study in nearshoring dynamics within North American value chains. Mexico's convergence of geographical proximity to the United States market, competitive labor costs, established manufacturing capabilities, and institutional framework under the United States–Mexico–Canada Agreement (USMCA) creates a value proposition for companies and governments seeking to de-risk their supply networks.

In particular, it is important to highlight key sectors where nearshoring activity in North America appears most pronounced: defense, robotics, semiconductors, and critical minerals processing. Therefore, this article argues that companies and governments implementing balanced nearshoring strategies in Mexico may improve supply chain resilience metrics, including reduction in disruption-related costs, faster recovery times from supply shocks, and inventory optimization. These considerations likely informed the Trump administration's initial exemption of Mexico and Canada from the implementation of new reciprocal tariff measures that were placed to other trading partners in April this year.

In mid-July, President Trump announced a 30% tariff on Mexican and European Union imports, effective August 1. However, prior to this deadline, President Trump announced yet again that new tariffs on Mexican goods would be delayed for 90 days. While such trade measures would represent a significant setback to North American integration, this three-month period constitutes an unmatched opportunity to start a USMCA trade review. Despite the fluid nature of the current situation, the sector-oriented recommendations presented in this paper remain highly actionable—indeed, they become more important—within this evolving global geopolitical environment. Ultimately, sustained bilateral commerce may persist even amid tensions over trade policy or border security between Washington and Mexico City. The mutual economic interdependencies between the United States and Mexico are likely to supersede reciprocal tariff regimes, particularly within the context of intensifying great-power competition, where regional partnerships assume heightened strategic significance.

All in all, this assessment may contribute to the understanding of how supply chain strategies may be evolving in response to changing geopolitical imperatives and offers an additional lens for analyzing the future of innovation power, particularly when it comes to North America’s competitiveness. On this note, this article offers a set of actionable recommendations to private sector entities and national governments in order to foster North American supply chain effectiveness.

Policy recommendations for North American supply chain reconfiguration

Based on the analysis of emerging nearshoring trends and Mexico's evolving position within reconfigured value networks, this article now advances a framework of targeted policy interventions across multiple stakeholder domains. The following recommendations are proposed as potential mechanisms to address current inadequacies and enhance regional integration outcomes.

Recommendations for Mexican Government Authorities.

1. Strategic Infrastructure Development.

Prioritize capital allocation toward strategic logistics corridors, port modernization initiatives, intermodal transport networks, and digital connectivity infrastructure to remediate logistical constraints that may impede nearshoring potential. Consider implementing public-private partnership frameworks to accelerate development timelines.

2. Energy Security Framework.

Formulate a comprehensive energy policy framework that ensures reliable and cost-competitive energy supply for industrial operations while incorporating renewable sources to address international ESG compliance requirements increasingly relevant to institutional investors and multinational corporations.

3. Specialized Human Capital Formation.

Institute targeted technical training programs aligned with priority industries for nearshoring initiatives, emphasizing advanced manufacturing capabilities, automation technologies, and digital transformation competencies. Strengthen industry-academia collaborative mechanisms to ensure skills development corresponds to evolving market demands.

4. Regulatory Stability Enhancement.

Strengthen investment protection mechanisms and establish expedited administrative protocols for strategic investment projects. Consider implementing regulatory sandboxes for emerging industries to facilitate adaptation of regulatory frameworks to novel business models.

5. Sector-Specific Industrial Policy.

Develop tailored incentive structures for sectors demonstrating particular competitive advantage potential –e.g. defense, robotics, semiconductors and critical minerals processing– with clearly defined performance metrics and sunset provisions to mitigate market distortion risks.

Recommendations for U.S. Businesses

1. Hybrid Regional Sourcing Partnerships

Develop differentiated sourcing architectures that strategically integrate Mexican suppliers into multi-tiered supply chains, prioritizing components based on criticality, value-density ratios, and disruption vulnerability. This approach combines portfolio diversification strategies with targeted regional partnerships, establishing collaborative arrangements that enhance Mexican suppliers’ technical capabilities and quality management systems. Through knowledge transfer programs and technical assistance initiatives, these hybrid models optimize both supply chain resilience and cost efficiency while strengthening North American industrial ecosystems. A compelling example of this approach is evident in the semiconductor assembly sector, where U.S. companies like Intel and Texas Instruments have successfully integrated Mexican facilities into critical supply chains.

2. Digital Transformation Investment.

Accelerate adoption of end-to-end supply chain visibility technologies to enhance predictive capabilities and disruption response mechanisms. Prioritize interoperability standards to facilitate data exchange across heterogeneous supply network participants.

Recommendations for North American Regional Cooperation.

1. Regulatory Harmonization Initiatives.

Deepen harmonization of technical standards, certification protocols, and customs procedures among USMCA member states. Consider mutual recognition agreements for conformity assessment to reduce duplicate compliance costs.

2. Supplier Development Funding Mechanisms.

Establish trilateral financial instruments to support capability development among tier-two and tier-three suppliers in strategic sectors. Design funding criteria to incentivize cross-border integration and technology diffusion throughout regional supply networks.

3. Sectoral Policy Coordination.

Implement structured regional coordination mechanisms for development of strategic regional industries, including defense, robotics, semiconductors and critical minerals processing. Consider establishing dedicated working groups with representation from government, industry, and academia across USMCA member states.

4. Collaborative Critical Minerals Management.

Establish complementary value chain integration, leveraging Canada and Mexico’s primary production capabilities with U.S. technological expertise and market depth. Develop joint processing facilities to reduce collective dependence on Chinese refining dominance while creating a resilient North American critical minerals ecosystem.

5. Shared Resilience Frameworks.

Establish regional protocols addressing strategic export restrictions, like China's critical mineral bans, and single-supplier vulnerabilities from natural disasters. Develop coordinated stress-testing methodologies simulating both geopolitical weaponization of supply dependencies and climate-induced infrastructure failures affecting key manufacturing hubs.

These recommendations are advanced as potential policy interventions to address observed deficiencies in current supply chain configurations while enhancing regional integration outcomes. Implementation effectiveness would require empirical assessment through longitudinal studies of supply chain performance metrics across multiple sectors.

Conclusion

The reconfiguration of global supply chains amid U.S.-China strategic competition presents both challenges and opportunities for North American economic integration. Companies and governments must prioritize resilience alongside efficiency in their supply chain strategies. Mexico emerges as a pivotal player in this transformation, offering a compelling nearshoring proposition through its geographic proximity, competitive labor costs, established manufacturing base, and USMCA framework. The future competitiveness of North America depends on coordinated action across multiple domains: strategic infrastructure development, energy security, human capital formation, and regulatory harmonization.

Regional success requires a multi-stakeholder approach. Mexican authorities must focus on infrastructure development and regulatory stability. Private sector entities should adopt sophisticated risk assessment methodologies and hybrid sourcing architectures. Regional cooperation demands regulatory harmonization, supplier development funding, and collaborative critical minerals management.

The path forward requires balancing immediate economic imperatives with long-term resilience goals. By embracing strategic regionalization rather than pure global efficiency, North American stakeholders can develop supply chains that withstand geopolitical pressures while maintaining competitive advantage. In this transformed landscape, those who adapt strategically—by leveraging, for instance, Mexico's position as a nearshoring destination while implementing balanced risk mitigation approaches—will be best positioned to navigate continued geopolitical uncertainties.