(Photo by Presidencia/Planet Pix/ZUMA/Eyevine via The Economist/CC0 1.0 DEED)
With Claudia Sheinbaum winning the Mexican presidential election in 2024 and Trump winning the U.S. election, the two countries now have a new relationship shaped by Trump’s decisions to impose tariffs on U.S. trade partners, including Mexico. Include here exactly what tariffs Trump placed on Mexico (and link source).
This decision was an unprecedented move, as before Trump’s second term, the U.S. and Mexico had been positively deepening their economic relationship since the 1990s. For instance, Sheinbaum’s predecessor, Andrés Manuel López Obrador (AMLO), maintained decent relations with Trump during his first term and with Biden afterwards. Now, with tariffs upsetting cross-border trade, the question is: can Mexico adapt its economy and emerge stronger in a new era of trade uncertainty?
How Trade Shaped Mexico’s Economy
In 2018, AMLO and Trump renegotiated the North American Free Trade Agreement (NAFTA) into the United States–Mexico–Canada Agreement (USMCA), an agreement that promotes free trade among the three countries. Through these policies, Mexico became the largest trading partner with the U.S. as Trump placed trade restrictions on China’s exports to the U.S.
For many, especially in the manufacturing industry, the NAFTA agreement transformed an already globalising world economy. With factories being able to produce parts elsewhere in the world and ship them to high-income consumers at a lower cost, many products became cheaper as businesses outsourced labour to places like Mexico. Although these new factory jobs paid well, they were much more dependent on international demand. This economic plan led to less stability when other countries’ demand for foreign goods dropped, especially during periods when new restrictions hurt demand.
However, Trump’s current tariff decisions to restrict trade from Mexico hurt its economy and workers. Increasing the price of exports to the U.S. will lower demand and force tough decisions amongst industries in Mexico. Sheinbaum’s response, including equal tariffs and discussions with Trump, has helped delay major tariffs. For example, by negotiating both more border security and preparing retaliatory tariffs on the U.S., Sheinbaum provided carrot and stick incentives for Trump not to carry out his most extreme tariff plans. In the long term, though, Trump’s plans mean that Mexico must chart a more independent economic vision separate from the U.S. as a leading trade partner.
President Sheinbaum’s Economic Vision
Sheinbaum did not use Trump or his protectionism policies as a significant part of her campaign, but she was supportive of maintaining a free trade relationship. Sheinbaum’s electoral goals centre around improving conditions for working-class Mexicans. With Mexican presidents limited to serving one term, a crisis can delay a president’s goals in office.
However, for Sheinbaum, the tariffs may provide positive pressure that will help her reform the Mexican economy. Where AMLO had focused primarily on reorganising state-related industries into more efficient or beneficial ones for Mexico’s citizens, Sheinbaum campaigned to invest in local manufacturing and supplement social services that allow opportunities for working-class people in Mexico.
Investing in manufacturing for local consumers or alternative markets will be important as tariffs or the threat of them reduce demand for U.S.-targeted manufacturing in Mexico. This will reduce the economic impact if these targeted factories close to moving to the U.S. by diversifying economic growth beyond exports to the U.S. New opportunities are essential for individuals who may lose their jobs or need to explore new career paths. Sheinbaum’s political party focuses on representing Mexicans who have lost opportunities as Mexico transitioned from state or public jobs to private jobs. This focus on supporting from the ground up will help those most affected by possible tariffs by providing alternatives for employment. This plan is especially relevant near the U.S.-Mexico border, as factories closer to U.S. buyers may be at risk.
Workers’ Rights and New Opportunities
Sheinbaum’s goals to improve workers’ rights could become more important due to the possible shift of businesses from Mexico to U.S. manufacturing. By increasing sustainable wage growth and protections for workers, it could help balance trade deficits, as there’s less demand for low-wage work in Mexico.
Increased access to formal jobs, such as international manufacturing, has improved workers’ rights and pay due to the USMCA’s provision for union jobs for specific products. Until the USMCA replaced NAFTA, workers could not negotiate with employers through independent unions. Sheinbaum’s political position may have an opportunity to make even more radical shifts in workers’ rights by leveraging Trump’s demand for a new USMCA deal. The USMCA agreement enables the current growth of formal jobs in Mexico to continue.
In 2026, President Sheinbaum is likely to maintain Mexico’s participation in the agreement when it is up for renegotiation. In addition, the government has passed a new minimum wage bill to increase the income of its lowest-paid workers. Policies like this will help address the disparity in labour costs between Mexican and U.S. workers, which drives factories to Mexico in a positive manner.
Industry Response to Tariffs
While some companies in Mexico may decide to relocate to the U.S., labour costs are still lower in Mexico. Until there’s a shift in policy regarding USMCA, some goods can avoid tariffs by establishing if Canada, Mexico, or the U.S. made the product instead of a third country. With these two factors, it is unlikely that there will be a dramatic shift of industry back to the U.S.
Until now, Trump has kept to this standard. Still, with many of Trump’s policies, it may shift as the electoral landscape changes and the president seeks an economic victory or policy highlight. As for President Sheinbaum’s policies, one of her goals is to establish a stronger “Made in Mexico” branding so that industries produce final products from Mexico instead of just parts for other countries’ companies.
Trump’s tariffs would hurt trade between Mexico and the U.S., resulting in higher prices on products or parts made in Mexico. For example, Mexico has become a major exporter of vehicle-related products. Industrial investment by U.S. companies in nearshoring to Mexico would become a casualty of the tariffs. This economic growth represents a shift from Mexico’s historical trade and economic policies, which have transitioned from a mainly state-led economy to one driven by private industries and investors.
The Mexican government had historically relied on PEMEX, its national oil company, to fund social welfare projects. Reliance on outside investment means increased support for individuals through training and assistance for small businesses. Through Sheinbaum’s political party, the government has found new opportunities while continuing to collaborate with outside companies. Due to new pressure from Trump through tariffs, industries will have to evolve their products exported to the U.S. or focus on global markets. With many factories located near the border, it may shift closer to coastal ports to serve the international market.
Tariffs: Short-Term Risk, Long-Term Gain?
Regardless of the outcome of the tariff conflict, Claudia Sheinbaum will likely chart a steady path away from integration with the U.S. As Sheinbaum’s political party advances in workers’ rights, there’s considerable pressure to maintain a steady trade relationship with the U.S. while beginning negotiations in 2026. As seen in other countries, the U.S. has not hesitated to tack on major restrictions in trade.
Given the significant amount of Mexico that currently exports to the U.S., Sheinbaum must balance moving Mexico to a less dependent place on trade with the U.S. while not causing economic hardship in the current moment. The two leaders represent different responses to the adverse effects of free trade, with Trump blocking imports to the U.S. to boost local production and Sheinbaum using the government’s capacity to fill in where the private sector fails, such as in training, general welfare, and supporting improvements in working conditions.
President Sheinbaum’s policies show that Mexico’s people want a shift away from the austerity and free market policies of the 1990s and 2000s, which Mexico’s leaders implemented through the signing of NAFTA. Much of the country’s economic growth came at the expense of the well-being of many. Now, with tariffs affecting this growth, Sheinbaum, with her party’s supermajority in the legislature, will have the opportunity to chart a more independent economic path for Mexico that is more resilient and sustainable in a more connected but turbulent global economy.
Edited by Melanie Miles and Light Naing
