(Bloomberg) -- Mexico should take advantage of nearshoring to better develop its manufacturing industry while also implementing policies to improve conditions for its workers, according to a close ally of the ruling party’s presidential candidate Claudia Sheinbaum. 

The trend that’s seeing companies from Tesla Inc. to Mercedes Benz Group AG open up factories closer to the world’s largest consumer market gives Mexico an opportunity to push to develop the local components of the industry said Diana Alarcon, the chief adviser and head of international affairs of the Mexico City government. She cited the example of China, which in the last decade moved to make car parts instead of just assembling vehicles.

“China offered the same as we did, commercial openness to build free zones for exports,” she said in an interview from New York. “But they invested in education, in developing local supply chains.”

Her comments are a window into the thinking of Sheinbaum, seen as the frontrunner to succeed President Andres Manuel Lopez Obrador. Sheinbaum, who left her post as Mexico City mayor in June to run for next year’s elections, has been has been mostly silent about policy definitions since winning the ruling party’s nomination earlier this month. 

The two women have known each other since their university years, and Alarcon is widely expected to be eventually part of Sheinbaum’s government if she wins. Alarcon, who’s been in her post since 2018, has been having meetings in New York this week with companies invested in Mexico. 

NAFTA Experience

Mexico needs to adapt its public policies, she said, arguing that the 1994 North American Free Trade Agreement (NAFTA) largely yielded low-paying manufacturing jobs. 

“There was a ‘free trade’ mentality from the government, ‘The market forces will work their magic,’” she said. “Turns out that’s not the case. Market forces don’t work like magic. It’s public policy that gives direction to processes.”

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Mexico has just overtaken China as the biggest supplier of goods to the US amid a push from the world’s largest economy to reduce supply-chain reliance on geopolitical rivals and source imports from closer to home. Expectations of a flood of new investments have helped push the Mexican peso up more than 16% in the past year, the best performing major currency in the world in that span. 

Countries from the US to Japan and South Korea have been able to develop local industries by investing in technology, education, innovation and workforce training which allows them to manufacture more sophisticated products integrating local components, she added.

“I hope we’ve learned from that experience to make it better this time,” she said.  

--With assistance from Eric Martin and Maya Averbuch.

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