In 2026, water availability has become a limiting factor for production and investment along the U.S.–Mexico border. In northern Mexico, water has shifted from an environmental issue to an economic and competitiveness constraint, as nearshoring-driven industrial growth continues in water-stressed regions including Baja California, Sonora, Chihuahua, Coahuila, Nuevo Leon, and Tamaulipas.
The border region has seen steady nearshoring growth since the introduction of NAFTA in 1994, with further acceleration from 2022 following supply chain disruptions linked to the pandemic and trade tensions between the United States and China. The current U.S. administration has reinforced pressure on companies to reduce reliance on China, including raising tariffs on Chinese goods to 147.6 per cent in May 2025. This shift has concentrated production and logistics activity in northern Mexico, intensifying pressure on already limited water resources.
Northern Mexico is the driest part of the country, and nearshoring activity has clustered there due to proximity to U.S. markets. Prolonged droughts in shared basins such as the Colorado River and Rio Grande have reduced water availability and increased uncertainty. Agriculture accounts for an estimated 80 per cent of regional water use, while climate-related factors, including drought, extreme heat, and irregular rainfall, further complicate water management.
Nearshoring activity is largely focused on water-intensive sectors such as automotive components, electronics, and medical devices, all of which require water for cooling, cleaning, and processing. Concentration of these industries in the same regions amplifies demand and transforms local water shortages into broader economic risk.
As a result, water availability is emerging as a production constraint for industry and agriculture alike. For companies operating along the border, unmanaged water stress can lead to production interruptions, higher operating costs, regulatory exposure, supply chain instability, and potential shutdowns. Existing infrastructure was designed around water as a public service rather than as a competitive input, leaving systems under strain as industrial demand increases and supply declines.
Water efficiency, reuse, and governance are increasingly relevant for business continuity. Investors, lenders, and insurers are integrating water risk into environmental, social, and governance assessments, as well as credit and operational reviews. Reduced water reliability increases capital intensity and cost volatility, affecting margin predictability.
Early engagement in cross-border coordination, technology adoption, and binational planning may support risk management. Decisions on site selection and production models increasingly need to reflect natural resource constraints. Water stewardship is becoming part of maintaining a social license to operate through transparency and responsible use.
In October 2025, the U.S.-Mexico Foundation for Science began preliminary analysis for a binational water initiative, engaging institutions including the International Boundary and Water Commission, academic bodies, and water management organizations. A white paper is scheduled for release by the end of January 2026, followed by regional workshops and project development during the first half of the year.
Source: Mexico Business News
