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The semiconductor industry is at a crossroads. Recent geopolitical tensions and supply chain vulnerabilities have ignited conversations about diversifying the chip manufacturing process away from China. A recent article by Chris Miller and David Talbot suggests that Mexico could play a pivotal role in reshaping the semiconductor industry. This article delves into why hyperscale data center operators and other technology-focused companies should consider Mexico as a viable alternative to the Asia-dominated market.

The CHIPS Act and Current Scenario

The CHIPS (Creating Helpful Incentives to Produce Semiconductors) and Science Act, passed by the U.S Congress last year, has sparked interest in shifting computing and electronic supply chains away from China. Most multinational firms are now considering countries like Vietnam, Thailand, and India for their production needs. However, the focus on Asia ignores a potential ally right across the border—Mexico.

Mexico’s Untapped Potential

Mexico is often overlooked as a high-tech manufacturing hub. Still, it already plays a critical role in advanced manufacturing sectors like autos, aerospace, and medical devices. The country has a relatively cheaper workforce than China and a well-established manufacturing relationship with the United States. The free trade agreement and geographical proximity further enhance Mexico’s attractiveness as a reliable partner for semiconductor assembly and packaging.

The Asian Dominance

Currently, Asia holds 81% of the global semiconductor Assembly, Testing, and Packaging (ATP) market share, with China alone accounting for 80% of global printed circuit board production. Given the high dependence on Asia, companies may find it tempting to stick with existing supply chains. However, this poses long-term risks, particularly in light of rising geopolitical tensions.

Challenges and Opportunities in Mexico

Despite the advantages, Mexico does face challenges. It lacks the same level of high-technology networks as its Asian counterparts. Workforce readiness, infrastructure issues, and rule-of-law concerns also act as barriers. However, the U.S. and Mexico have recently formed working groups and initiatives to address these issues and promote semiconductor manufacturing.

Policy Implications

Both the U.S and Mexico need a comprehensive strategy to make Mexico an attractive destination for semiconductor investment. This includes offering more substantial subsidies and incentives, similar to what Asian countries provide. Collaboration at a trilateral level with Canada could further strengthen the North American semiconductor ecosystem.

Conclusion: A Win-Win Scenario

By leveraging Mexico’s untapped potential, the U.S can achieve a more resilient and secure semiconductor supply chain. For hyperscale data center operators, this could mean more reliable supply chains, reduced costs, and an opportunity to be at the forefront of an industry transformation. It’s high time to look beyond Asia and consider the capabilities of America’s largest trading partner—Mexico.

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