Mexico Braces for Trump's Return to Power

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Few nations in the Americas face as uncertain a future with Donald Trump’s return to the U.S. presidency as Mexico, whose economy and security policies are intricately tied to its powerful northern neighbor.

With a population of nearly 130 million, Mexico is once again the target of Trump’s campaign promises—ranging from tariffs and trade policy to immigration crackdowns and a renewed emphasis on drug enforcement.

Economic Tensions and Trade Risks

Despite a recent decrease in border crossings—largely thanks to Mexico's cooperation with the Biden administration’s migration restrictions—Trump’s campaign pledges indicate that Mexico could face heightened tension. Trump has already threatened to impose steep tariffs, a risk to Mexico’s economy, given that the U.S. now imports more from Mexico than from China.

Trump has called for a 25% tariff on all goods from Mexico unless it stops what he terms an “onslaught” of migrants and drugs, a position that, if enforced, would significantly impact Mexico, where about 80% of exports are U.S.-bound.

The stakes are especially high in Mexico’s auto industry, which exports nearly $90 billion worth of vehicles annually to the U.S. This sector contributes roughly 5% of Mexico’s GDP, and Trump’s proposal for tariffs as high as 200% on Mexican auto imports could deliver a crushing blow. Given the tightly integrated U.S.-Mexico supply chains, such tariffs would also likely harm American companies and consumers.

Sheinbaum’s Diplomatic Balance

Mexican President Claudia Sheinbaum has expressed optimism, stating that Mexico is committed to positive relations with any U.S. president, including Trump. However, Trump’s latest threats of “Day 1” tariffs have put Sheinbaum in a difficult position, as she now balances diplomatic optimism with potential action to safeguard Mexico’s interests.

Sheinbaum’s predecessor, Andrés Manuel López Obrador, managed a complex relationship with Trump by deploying Mexican security forces to control migrant flows, in exchange for Trump refraining from intervening in Mexico’s domestic affairs.

But Trump’s approach to drug cartels has intensified; during his previous term, he even suggested launching missile strikes against Mexican drug labs. Trump recently stated that he would be willing to use U.S. military force against Mexican cartels if Mexico does not act quickly to control them.

Mexican officials have issued stern reminders that Mexico’s sovereignty must be respected, with Roberto Velasco álvarez, Mexico’s top North American official, asserting that Mexico “is not anyone’s colony or protectorate.”

Impact of Mass Deportations

Trump’s pledges go beyond tariffs and potential military intervention. He has vowed to remake America’s immigration system, even though border crossings are currently at a four-year low. Trump proposes hiring 10,000 new border agents and redirecting parts of the military budget to fortify the U.S.-Mexico border. Mass deportations could also increase unemployment within Mexico, as returning migrants add to the country’s labor force, which may already be strained.

Trump has outlined plans to carry out the largest deportation program in U.S. history, targeting some of the estimated 11 million undocumented migrants currently in the country. About four million of these undocumented migrants are Mexican, and the prospect of large-scale deportations concerns Raul Hinojosa, director of U.C.L.A.’s North American Integration and Development Center.

Deportations would also significantly reduce the $63 billion in remittances Mexican migrants sent home in 2023, a vital source of income for Mexico’s economy. According to a study by researchers from U.C.L.A., the Peterson Institute for International Economics, and the U.S. Naval Academy, a wave of returning migrants could push Mexico’s economy into a severe recession.

Chinese Investment Adds Complexity

Another looming issue is China’s growing presence in Mexico. As part of its development efforts, Mexico has welcomed Chinese investment in recent years, especially in the manufacturing and auto sectors. Trump’s proposed 60% tariff on Chinese goods could complicate Mexico’s incentives for Chinese companies and create further friction with the U.S.

The stakes for the U.S.-Mexico relationship are high. The two countries are tied not only through trade and investment but also by shared social and security concerns. Analysts believe how Sheinbaum and her administration navigate Trump’s renewed pressures could reshape North American diplomacy for years to come, affecting everything from economic growth to migration trends across the Americas.

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This is the lead story to our latest edition of Barber's Mexico Business Report. Seven more stories follow. For full access, subscribe here (not LinkedIn.)

Other stories in this edition:

Mexico Faces Scrutiny Over Chinese Investments

With Mexican imports from China on the rise, U.S. lawmakers are increasingly suspicious, suggesting that China may be using Mexico as a gateway to bypass American tariffs. This puts Mexico in a delicate position: its top priority is to safeguard its dominant trade relationship with the United States, which receives over three-quarters of Mexico’s exports.

Economy Minister Seeks Meeting on Tesla Plans

Mexico's Economy Minister, Marcelo Ebrard, plans to meet soon with Tesla CEO Elon Musk to discuss the potential for an electric car factory in northern Mexico. Ebrard said he aims to clarify Musk's intentions for the project and explore options to advance it.

Solar Sector Stalled for Big Players

For the past six years, large-scale private solar farms have been largely stalled in Mexico, as state-led energy policies favoring domestic resources have curbed foreign-dominated projects. In contrast, small-scale solar installations on businesses and homes have thrived.

Toyota Announces $1.45 Billion Investment

Toyota says it will spend $1.45 billion in Mexico to expand its manufacturing capabilities. This decision will bolster operations at Toyota's plants located in Baja California and Guanajuato.

Sheinbaum Signals Shift from "Hugs, Not Bullets"

For six years, Mexico promoted its controversial "hugs, not bullets" strategy, an approach in which previous administrations avoided direct confrontations with drug cartels, hoping instead that social programs would reduce the cartels' power by offering alternatives to crime. Now, a month into President Claudia Sheinbaum’s term, a series of violent confrontations suggests a quiet departure from this strategy.

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