NAFTA took effect for the United States, Mexico, and Canada, setting a schedule to reduce tariffs and other barriers over time. For manufacturers, the agreement made cross-border supply chains easier to plan because market access rules became more predictable. It also strengthened investor protections that helped shape decisions about where to build plants and source parts.
NAFTA’s auto rules of origin required cars and light trucks to meet a minimum North American “regional value content” (share of value made in the region) to qualify for duty-free trade. The required share started at 50% and was scheduled to rise to 62.5% over an eight-year transition. These rules encouraged firms to locate more parts production inside North America, including in Mexico.
Mexico devalued the peso in late 1994, triggering a financial crisis that spilled into 1995 with a sharp economic contraction. While painful for domestic demand, the weaker peso made exports cheaper in dollar terms. This shift helped make export-focused manufacturing in Mexico more attractive to foreign firms looking to serve the U.S. market.
After the 1994–1995 crisis, employment in export assembly plants (maquiladoras) rose quickly as production for the U.S. market expanded. Many maquiladoras focused on electronics, auto parts, and textiles and apparel. This growth became a visible sign of manufacturing relocation to Mexico within the NAFTA region.
International reviews noted that, despite the crisis, Mexico avoided a turn toward protectionism (new trade barriers) and continued liberalizing trade and investment. Exports, especially manufacturing exports, were highlighted as a major driver of recovery in the mid-1990s. This reinforced Mexico’s role as a manufacturing platform linked to North American demand.
By 2000, maquiladora industries employed about 1.3 million workers nationally, concentrated in sectors like electronics, auto parts, and apparel. The size of this workforce reflected how strongly export manufacturing had grown during NAFTA’s early years. For many communities, these plants became a main source of formal jobs tied to U.S. supply chains.
U.S. government analysis found maquiladora employment peaked around October 2000 and then fell, with notable declines by late 2002. The report described how losses varied by city and industry, including electronics, autos/parts, and textiles/apparel. This downturn showed that NAFTA-based manufacturing in Mexico was not a one-way rise and could be disrupted by global competition and demand shifts.
China became a WTO member in December 2001, marking a major step in its integration into global trade. For Mexico’s export manufacturers, this helped accelerate competition in products where costs and scale mattered, such as electronics and apparel. Firms reassessed where to place production for the U.S. market as global options expanded.
Mexico published the PROSEC (Sectoral Promotion Programs) framework in 2002 to allow authorized producers to import certain inputs at preferential tariff rates when used in making specified goods. The policy aimed to help Mexican-based manufacturing stay competitive, including for export production. In practice, it complemented NAFTA-era supply chains by reducing costs for imported components used in Mexico.
In 2006, Mexico merged key export promotion programs into IMMEX, combining the maquiladora framework with PITEX (a temporary import program for producing exports). IMMEX simplified rules for firms that temporarily import parts and materials for export production, helping large manufacturers and suppliers operate across Mexico. This change supported continued foreign investment and relocation beyond the border region into interior states.
Mexico created ProMéxico as a federal trust to promote exports and attract foreign direct investment. The agency expanded Mexico’s ability to market industrial locations and support firms entering global supply chains. This institutional push aligned with NAFTA-era goals of building an export-focused manufacturing base.
By 2008, NAFTA’s phased tariff eliminations were largely completed, with most duties and quantitative restrictions removed among the three countries. For manufacturers, the end of many remaining tariffs reduced the cost of moving finished goods and intermediate inputs across borders. This reinforced the long-term shift toward integrated North American production networks, including continued investment in Mexican plants.
By 2010, Mexico’s export-manufacturing model under NAFTA had matured: supply chains were deeply integrated, but competition from Asia and economic cycles had shown the limits of simple assembly growth. Policies like PROSEC and IMMEX reflected a shift from just attracting plants to sustaining competitiveness through rules, incentives, and supplier development. The result was a manufacturing landscape shaped by both relocation into Mexico and ongoing pressure to move up the value chain.
Manufacturing Relocation and Foreign Direct Investment in Mexico under NAFTA (1994–2010)