Methodology & Sources

Trade Data

  • OEC / UN Comtrade (BACI): Bilateral trade flows at HS6 level, 2023. Used for cross-country sourcing analysis (Mexico, USA, Canada).
  • SAT (Mexico): Subnational (state-level) exports and imports via OEC cube trade_s_mex_y_hs6.
  • U.S. Census / OEC: State-level trade via trade_s_usa_state_m_hs. Nine states with largest pump/valve activity.
  • StatCan / OEC: Provincial trade via trade_s_can_m_hs. Ontario, Quebec, British Columbia.

Definitions

  • Subsystem: An HS6 product code representing a functional input to pumps (HS 8413) and valves (HS 8481). Seven subsystems traced: processor circuits (854231), data processing (847330), AC motors (850140), DC motors (850131), static converters (850440), gaskets/seals (401693), wiring sets (854430).
  • Non-regional sourcing (%): Share of a country's imports of a given HS6 code originating outside North America (Mexico + USA + Canada).
  • Archetype: State/province classification based on ratio of final goods (HS4 8413+8481) to upstream inputs (HS4 8542+8473+8501+8504+4016+8544).

Scope & Limitations

  • Case study scope: Pumps and valves ($4.29B) chosen as a tractable test case. The assembly-inputs asymmetry pattern repeats across automotive ($310B), aerospace ($93B), and medical devices ($45B).
  • Supplier data gap: Top non-regional supplier breakdowns by country and subsystem are pending for heatmap tooltips.
  • Utilization rates: T-MEC utilization (44.8% to 88.7%) from SAT/CBP administrative records. Rates measure claims filed, not actual regional content.
  • State-level trade: Some re-exports through border states may inflate reported values. OEC subnational data assigns trade by state of record, not production.

Additional Sources

  • Federal Reserve FEDS Note (July 2025): Compliance cost estimate of 1.4-2.5% tariff equivalent for USMCA rules of origin.
  • U.S. ITA / trade.gov: Mexico autoparts supplier pyramid (2,135 companies: 60% Tier 1, 31% Tier 2, 8% Tier 3).
  • SEC EDGAR 10-K filings: Pentair, Parker Hannifin, and Illinois Tool Works disclose 40,000+ global suppliers each. Used for verification burden analysis.
  • USTR autos reports: Non-claiming behavior and certification burden documentation.
  • Ubiquity scores: Product-level ubiquity from OEC complexity measures. Used to color location product charts (green = strategic, yellow = mid, gray = commodity).
0
Prologue

The Pattern Is Systemic

Final goods stay in the bloc. Subsystems do not. Every sector, same shape.

Source: OEC / UN Comtrade, 2023
Sector view

Assembly stays. Inputs leave.

Automotive assembles $310B regionally. Drivetrain electronics come from East Asia. Aerospace: $93B in final assembly, avionics and precision alloys 40-60% non-regional. Medical devices: $45B, semiconductor components almost entirely imported.

Final goods stay in the bloc. Subsystems don't. Every sector, same shape.

Source: OEC / UN Comtrade, 2023
Test case

Why pumps

Automotive's scale obscures the mechanism. Thousands of codes, hundreds of flows, every data point contested.

Pumps and valves: $4.3B. Small enough to trace every input. Large enough to matter. If the bloc cannot close the gap here, it will not close it at $310B.

2026: the T-MEC joint review. Tighten, relax, or restructure rules of origin. That decision needs supply chain facts, not assumptions.

Start with the chain itself.
I
Part One

The Chain

Seven subsystems. A gradient of complexity. A gradient of leakage.

Source: Author classification
Function

Transversal goods

Factory, power plant, refinery, data center. Pumps move fluids. Valves control flow. Not niche. Infrastructure.

Source: OEC / SAT Mexico trade data, HS6 level, 2023
Mexico, $B

Six subsystems

Motors for force. Converters for power regulation. Circuits for control logic. Seals for containment. Wiring for connection. Data processing for management.

Each one, a different layer of complexity.

Source: OEC / SAT Mexico trade data, HS6 level, 2023
Gradient

The sourcing gradient

Gaskets and wiring: 43-50% non-regional. Converters: 83%. Processor circuits: 96%.

Higher complexity, wider deficit. Mexico imports $18.76B in processor circuits. Ninety-six percent from outside North America.

This gradient is not unique to Mexico.
II
Part Two

The Gap

Three countries. Same shape. Rules of origin require regional content the region does not supply.

Source: OEC / UN Comtrade trilateral trade flows, 2023
Trilateral

Three countries, same shape

Mexico exports 93% of its pumps and valves to the bloc. Sources inputs 80-96% outside it. Canada exports 76-95% regionally. Sources converters 67% and circuits 81% outside. The United States: 98.8% of its processor circuits from outside. 83.5% of its converters.

Not a Mexican problem. A North American one.

Source: OEC / UN Comtrade trilateral trade flows, 2023
Complexity

Complexity drives the deficit

Gaskets: 37-50% non-regional across all three. Bulk, low-value, proximity works.

Processor circuits: 80-99%. Converters: 67-84%.

Rules of origin require regional content. The region does not supply it where it matters most.

Three failures. Three mechanisms.
III
Part Three

Three Failures

Coordination. A thin base. A strategic vacuum. Each demands its own instrument.

Source: OEC / SAT Mexico imports, HS6 850131+850140, 2023
Failure 1

Coordination failure: Motors

Capacity exists on both sides. Mexico exports DC motors north. The US makes AC motors. Yet Mexico imports $1.66B in motors, 80-87% non-regional. China supplies $667M. The US: $277M.

The bottleneck is not production. It is verification. Pentair, Parker Hannifin, and Illinois Tool Works each disclose 40,000+ global suppliers in their 10-K filings. Regional verification at that scale is not a process improvement. It is a structural barrier.

Source: OEC / UN Comtrade, HS6 850440, 2023
Failure 2

Thin base: Converters

The region makes converters. But concentrated. No redundancy. Mexico: $4.06B, 83% non-regional. US: $17.11B, 84%. Canada: $2.52B, 67%.

One or two facilities per country. Disruption breaks supply. Concentration reinforces itself.

Source: OEC / UN Comtrade, HS6 854231, 2023
Failure 3

Strategic gap: Circuits

No regional substitute at scale. Mexico: $18.76B, 96%. US: $28.25B, 99%. Canada: $1.11B, 81%. Combined: $48.1B, 96% from outside.

There is no regional supplier to verify. Tightening rules penalizes exporters with zero substitution options.

The three failures have geography.
IV
Part Four

Geography

Where assembly happens. Where upstream sits stranded. Where the two meet.

Source: OEC / SAT subnational trade, HS4 level, 2023
Archetype A

Assembly poles

Coahuila: $220M in pumps and valves. Thin upstream. Sonora: $195M. Limited input base. They integrate the product. They import what makes it work.

Source: OEC / SAT subnational trade, HS4 level, 2023
Archetype B

Stranded capacity

Jalisco: $8.6B in upstream inputs, 13 HS4 categories. $43M in pumps and valves. CDMX: $1.5B upstream, $143M final goods.

They make what the region needs. Not connected to the assemblers who could absorb it.

Source: OEC / SAT subnational trade, HS4 level, 2023
Archetype C

Integrated nodes

Chihuahua: $798M final goods, $11.3B upstream, 15 HS4 categories. Nuevo Leon: $639M final, $6.4B upstream, 16 categories.

Assembly and upstream in the same place. Traceability simpler. Verification cheaper.

Source: OEC / SAT + StatCan subnational trade, 2023
Archetype D

Incipient node

Ontario: $880M in pumps and valves. Honda's CAD $15B EV supply chain commitment. Upstream capability building but T-MEC utilization at only 53% in 2025. Capacity exists. Linkages do not.

Proximity helps. It does not explain who captures the preference.
V
Part Five

Who Captures the Preference

Fixed costs, lock-in, learning paradox. The T-MEC preference rewards whoever can afford to prove it.

Source: Federal Reserve, INEGI autoparts census, 2023
Cost structure

Fixed costs

The T-MEC preference means margin, volume stability, contractual priority. Qualifying means paperwork: input traceability, process audits, compliance files. That cost is fixed. Same paperwork for a $500K shipment and a $50M one. The Federal Reserve estimates compliance costs at 1.4-2.5% of shipment value, equivalent to a tariff. Some suppliers declare inputs "non-originating" rather than complete verification. Large firms spread it. Small firms absorb it whole.

Source: SEC EDGAR 10-K filings; USTR autos reports
Incumbency

Lock-in

OEM audits a supplier. Switching means starting over. Incumbents protected. Alternatives shut out. Cost of proving arrives before volume. Depends on the relationship. Repeats with every new buyer.

Source: Author synthesis
Feedback

The learning paradox

Non-portable verification blocks new contracts. No contracts means no production runs. No runs means no process learning. No learning means the capacity gap persists. That persistent gap then justifies continued extraregional sourcing. A reinforcing loop.

Failures are distinct. Instruments must be too.
VI
Part Six

Instruments

Three failures, three instruments. The architecture of regional content has to be rebuilt around verification, not tightened around it.

Source: Author policy analysis; Article 32.10 USMCA
Policy

Coordination → Shared verification

Motors and seals. SAT, CBP, and CBSA jointly recognize certifications. Shared testing labs. Portable compliance files reusable across buyers under a common trilateral standard. Rules of origin stay. The infrastructure for demonstrating compliance changes.

VII
Coda

What’s at Stake

Productivity. Fiscal multipliers. Geopolitical autonomy. The pumps are just the place you can see it first.

Source: OEC / UN Comtrade; CHIPS Act; IRA
Stakes

Productivity

Assemble without producing subsystems and the learning stays where the component is made. Not where it is integrated. Employment without capability accumulation.

Verify the motors.
Diversify the converters.
Manage the transition on circuits.
Three failures, three instruments, one review cycle.

The 2026 T-MEC joint review decides whether the region tightens rules of origin, relaxes them, or rebuilds the infrastructure that lets firms demonstrate them. Facts first, then policy.

GripPoint  /  grippoint.co
Based on “De las gigafábricas a los eslabones” by Gilberto García-Vazquez