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Trade tensions between the U.S. and China have prompted U.S.-based executives to consider expansion in Mexico, according to a survey by Foley & Lardner.

The firm surveyed 160 U.S.-based executives from the manufacturing, automotive, retail and technology sectors about their interest in doing business in Latin America's second-biggest economy in the weeks leading up to U.S. approval of the new North American free trade agreement in January.

Across sectors, respondents expressed an intent to move business to Mexico from other countries, expand internationally for the first time via Mexico or grow existing Mexican operations—and to do so rapidly, within the next one to five years. Mexico's $1.2 trillion economy boasts 130 million consumers.

Proximity to the U.S. and strong trade ties are selling points for doing business in Mexico, Foley said. Mexico's manufacturing-heavy economy relies on the U.S. to absorb more than 80% of its exports. Those exports include fruits, vegetables, electronics, vehicles and tequila.

President Donald Trump's multibillion-dollar trade war with China propelled Mexico to the top of the list of U.S. trade partners last year, despite repeated threats by Trump to close the U.S.-Mexico border altogether.

"A more stable business environment can be the tiebreaker for many executives when they make decisions," said Foley partner Steven Hilfinger, co-chair of the firm's manufacturing industry team. "The future with China and other parts of Asia looks less clear."

Mexico ranks 60th in the World Bank's Ease of Doing Business rankings, which scores countries based on barriers such as bureaucracy to obtain construction permits or register property ownership. A lower number in the rankings indicates greater ease of business in that country. China ranks 31st on the list.

Uncertainty over trade with China has mounted in 2020 with the outbreak of the coronavirus. Efforts to contain the virus have curbed growth in the world's second-biggest economy; a less robust Chinese economy could result in lower demand for commodities such as copper and iron ore—key exports for countries in South America. Mexico has far weaker trade links to China than countries like Brazil and Chile.

Priorities of operating in Mexico vary greatly across industries. More than half of the technology executives surveyed by Foley listed procurement of government contracts as a top priority, while nearly all the automotive executives said compliance with rules of origin was a chief concern.

The U.S.-Mexico-Canada trade agreement dictates that by 2023, 75% of car parts in assembled vehicles must have been made in North America to qualify for duty-free imports, up from 62.5% currently. Industry data shows that one of every six light vehicles sold in the U.S. is assembled in Mexico.

Mark Aiello, partner and co-chair of Foley's auto industry team, said the new USMCA standards represent a departure from business as usual. "With ratification, suppliers will need to assess the opportunities the agreement may provide to them and incorporate into their strategic planning the implementation of action to capitalize on those opportunities," he said.