How Mexico became a surprise cornerstone of America’s AI boom

{"text":[[{"start":11.38,"text":"Mexico has quietly become a cornerstone of the AI boom, providing 40 per cent of US imports this year of the computer servers that are widely used in the data centres powering artificial intelligence."}],[{"start":23.44,"text":"Taiwanese manufacturers are rapidly expanding factories in Mexico to assemble servers, which are now the country’s top US export, overtaking autos that dominated its trade for decades."}],[{"start":34.92,"text":"Mexico is the second-largest provider of enterprise servers to the US so far this year, with sales reaching $46.9bn, behind Taiwan, which sold $53.5bn, though Mexico became the largest on a monthly basis in May."}],[{"start":50.16,"text":"The phenomenon is helping prop up Mexico’s limp economy, pushing the country’s exports to record levels. Servers and related hardware made up almost one-fifth of the $317bn of goods Mexico exported between January and May, more than double the same period a year earlier."}],[{"start":67.56,"text":"Taiwan, in turn, is now Mexico’s third-largest trading partner, up from eighth place in 2022. Taiwanese companies have spent more than $1.6bn since 2020 on Mexican factories that offer geographic proximity and tariff-free access to US tech giants spending hundreds of billions on data centres."}],[{"start":87.84,"text":"“Mexico is of tremendous importance to the way this new AI-powered economy is working,” said Jesse Rogers, head of Latin America economics at Moody’s Analytics. “It is really a new frontier of collaboration and even dependency on the Mexican economy when it comes to AI servers.”"}],[{"start":null,"text":"

"}],[{"start":105.04,"text":"Ciudad Juárez, across the Rio Grande from El Paso in Texas, is at the heart of the industry, building off the border town’s existing Taiwanese factories that have been making simpler electronics for decades. The new production lines assemble parts shipped from Asia into AI servers, which are stacked in refrigerator-sized racks that can weigh more than two tonnes each and are then trucked across the border."}],[{"start":125.56,"text":"“We picked El Paso [and Ciudad Juárez] because they are in the middle of North America, so it’s very fast to deliver the finished product,” said Kun Lin Yang, executive director for Mexico at Taiwanese electronics maker Pegatron, which now has five plants in Juárez. “The market is huge, so we continue to invest in Mexico.”"}],[{"start":null,"text":""}],[{"start":null,"text":""}],[{"start":146.6,"text":"Many top electronics companies have been in Mexico for more than 20 years, taking advantage of the labour pool and a programme that allows the temporary importation of certain goods if they are used in products for export."}],[{"start":158.643,"text":"Higher exports and a growing new industry have more recently been propping up a weakening economy. GDP growth fell to 0.6 per cent last year compared to an average of 1.6 per cent in the five years before the Covid-19 pandemic."}],[{"start":173.04,"text":"“Mexico would have been in recession” now without the increase in exports, said Carlos Serrano, chief economist at BBVA Mexico."}],[{"start":null,"text":""}],[{"start":180.335,"text":"President Donald Trump decided against a long-term extension of the US, Mexico, Canada Agreement (USMCA) this month, as his team tries to negotiate a deal to cut Chinese influence in its region. Alongside the trade uncertainty, changes implemented by Mexico’s President Claudia Sheinbaum, such as electing the country’s judges, have also held back investment. The Mexican economy will grow 1.3 per cent this year, the World Bank estimates, far less than peers."}],[{"start":208.983,"text":"AI servers offer a “paradigm shift” because the high value of each server rack means you can export higher dollar amounts per load, said Fernando Alba, deputy economy minister in Chihuahua state, where Ciudad Juárez is located. “One truck [of servers] is the equivalent of one thousand cars.”"}],[{"start":226.248,"text":"The surge in high-value exports is yet to translate into proportional local benefits, though. Each dollar of investment in the highly automated plants creates far fewer jobs than more manual sectors such as car parts. Manufacturing employment peaked in 2023 in Ciudad Juárez."}],[{"start":null,"text":""}],[{"start":null,"text":""}],[{"start":245.32,"text":"Yang of Pegatron said 20 years ago one supervisor typically oversaw 10-20 factory workers, but the ratio now was more like one to 2-2.5."}],[{"start":254.04,"text":"Mexico manufactures very few of the parts used in the sector. Alba said in the current conditions it could realistically aspire to reach 3-7 per cent Mexican content in each server, compared to 39 per cent for autos. It could do electronics, cooling and product design but making chips was very unlikely, he said, as the country lacks the engineering and design knowhow, as well as enough energy and water."}],[{"start":278.8,"text":"“A car is a value chain disseminated up and down the country . . . it’s much harder to do that with AI servers,” he said. “We are much less prepared.”"}],[{"start":285.16,"text":"Sheinbaum’s government launched a national strategy called Plan México last year to encourage local production in key industries, but it has provided limited funds or concrete incentives for companies so far."}],[{"start":296.8,"text":"Yang of Pegatron says the uncertainty around the future of USMCA was a concern, but that the company recently bought land for another factory and was already trying to encourage its suppliers to build in Mexico."}],[{"start":308.166,"text":"Taiwanese chip manufacturer TSMC has said it will spend $265bn manufacturing in Arizona, which also shares a border with Mexico."}],[{"start":319.04,"text":"Violeta Hsu, the Taiwanese government’s representative in Mexico, said many more supply-chain companies were likely to come. But, along with water and electricity shortages, the biggest reason giants such as TSMC could not manufacture south of the border is a lack of engineers with the relevant skill set."}],[{"start":333.953,"text":"“The biggest issue is the personnel,” she said, adding that making complex chips can involve more than 1,000 steps and hundreds of engineers. “If you have the opportunity to visit TSMC and see the process, they’ll understand it’s not so easy.”"}],[{"start":348.66,"text":"The AI server boom is changing Mexico’s regional economic balance, with central Jalisco state leapfrogging several states to become the second-largest exporter by value in the first quarter. Foxconn is building one of its largest server factories using advanced Nvidia chips just outside the state capital Guadalajara."}],[{"start":365.713,"text":"Despite the growth in exports, the sector is not large enough to create strong overall economic growth in Mexico, with swaths of the country left behind. But Alba said the country does not have many alternatives to AI."}],[{"start":378.28,"text":"“No one else is investing in the country. Tell me the last new auto plant, the last new electronics plant,” he said. “This is it . . . it’s ours to lose.”"}],[{"start":390.36,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1785568184_1411.mp3"}