Trade tensions with the United States highlight the extreme dependence of the Mexican economic model on the world’s leading economic power.
Under the Biden administration, the outlook for Mexico in terms of trade and investment was positive thanks to measures such as the Inflation Reduction Law and the growth of the nearshoring (nearby relocation) within the framework of the reconfiguration of value chains. However, these high expectations have been called into question since the re-election of Donald Trump.
For the Mexican Government, this context adds an additional degree of complexity to a situation marked by slow economic growth, the decline of the oil sector, the restrictions that weigh on public finances and the various obstacles to socioeconomic development and the energy transition. However, Mexico no longer presents the macroeconomic fragilities of the 1980s-1990s, which generated the balance of payments crisis in 1994.
Mexico, the first supplier to the United States
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Deployed since the 1960s, the maquiladora model – those factories located on the northern border of Mexico (but also in the center of the country) that produce goods for export – has structured a cross-border ecosystem that employs some three million Mexicans and benefits thousands of American companies.
Mexico has made the most of the competitive advantages based on its privileged geographical position, the low cost of labor and the North American Free Trade Agreement (NAFTA since 1994 and USMCA since 2020). Economies of scale have been achieved in some sectors, such as automobiles, electronics and aeronautics.
According to the United Nations Industrial Development Organization (UNIDO), Mexico ranked ninth in 2023 in terms of contribution to global manufacturing value added (1.8%). Almost 80% of its manufacturing exports are medium and high technology products. In this area, Mexico occupies fourth place in the world, behind Taiwan, the Philippines and Japan.
However, local production mainly consists of assembly lines of finished or semi-finished products. Therefore, the domestic value added embedded in exports is estimated at only 9% of Mexico’s total exports in 2020, according to the OECD’s TiVA (Trade in Value Added) database.
Taking advantage of the trade tensions that have existed between Washington and Beijing since 2018, Mexico became the first supplier to the United States in 2023. Faced with the global trade storm unleashed since the beginning of 2025, income from Mexican exports to the United States has so far shown good resistance.
U.S. Department of Commerce, IMF Census Bureau (DOTS), calculations provided by author, Provided by the author
Mexico’s market share peaked at 15.5% in 2024, compared to 13.5% for China (the latter was 21.6% in 2017). The share of Mexican exports destined for the United States grew from 79.5% in 2018 to 83.1% in 2024, mainly of manufactured or semi-finished products, although there are also agricultural products and crude oil.
Particularly criticized by Donald Trump, the bilateral trade surplus in goods with the United States has increased continuously since 2009 to reach $247 billion (€210 billion) in 2024, ranking second in the world behind China ($360 billion).
Guarantee the continuity of the T-MEC
The security cooperation agreement signed on September 4, 2025 between Mexico and the United States appears to be a success for the negotiating skills of President Claudia Sheinbaum.
This agreement is a consequence of the announcement made in February about the deployment of 10,000 Mexican soldiers to the border and the extradition of 55 drug traffickers to the United States during the first eight months of the year.
The Mexican authorities have their sights set on the review of the Treaty between the United States, Mexico and Canada (T-MEC), scheduled for July 2026, and are counting on the Trump administration’s position to be less radical and more pragmatic than until now.
The average rate of customs duties paid by Mexico in September 2025 was 4.72% (compared to 0.22% in September of the previous year). In 2025, the average tariff applied by the United States globally would be 11% (up from 2% in 2024) and 40% on Chinese imports (up from 10% in 2024).
According to the Mexican Ministry of Finance, in mid-2025, 81% of Mexican exports to the United States complied with the USMCA and would have entered the territory without tariffs, compared to just 50% in 2024. This increase is explained, in particular, by the efforts made in terms of traceability.
Additionally, Mexico seeks to diversify its trade partners. The country is a signatory to 14 other free trade agreements with around 50 countries, not counting the new Modernized Global Agreement with the EU, concluded on January 17, 2025, which is in the process of ratification.
The Sheinbaum administration also intends to strengthen trade relations with countries in the region. An example is the agreement with Brazil, renewed last August, which involves the agricultural and biofuels sectors.
At the same time, customs tariffs of 10 to 50% will be imposed on certain products imported into Mexico, particularly those from countries with which it does not have free trade agreements. Products from China and other countries without such treaties will be taxed up to 50% in order to protect employment in sensitive sectors.
In response, China has announced economic retaliation against Mexico, which has become an important trading partner in the last ten years, especially in the automobile sector.
Remain attractive to investors
Mexico’s attractiveness to foreign investors could be compromised by the Trump administration’s protectionist policy, which has led to a wait-and-see attitude among some companies and a possible review of their investment strategy. nearshoring to the United States or other countries.
In 2024, Mexico received a record level of foreign direct investment (FDI) since 2013 (44 billion dollars, or 37 billion euros, representing 2.4% of GDP), becoming the ninth recipient in the world and the second among emerging countries, behind Brazil and ahead of India, Indonesia, Vietnam and, above all, China, whose FDI flows have plummeted.
IMF (DOTS), calculations provided by the author, Provided by the author
Since 2018, most of the inward FDI in Mexico comes from the United States. But the total balance continues to be dominated by European companies (54%), ahead of American companies or those that have invested from the United States (32%), while Chinese investors only represent 1% of installed FDI.
Although total FDI flows remained very dynamic in the first half of 2025 (+2% compared to 2024), they decreased in the manufacturing sector. Since the re-election of Donald Trump and the adoption of the Mexican judicial reform, investment projects have been canceled, suspended or postponed.
According to the Business Coordinating Council, an autonomous body that represents Mexican companies, more than 60 billion dollars (50.9 billion euros) in investments are currently frozen.
The Chinese authorities, for example, would have denied the manufacturer BYD authorization to set up a car factory in Mexico with 10,000 jobs at stake.
Maintain strong external accounts
The international context does not raise, at this time, great concern about the risk of deviation of Mexican external accounts in the short or medium term.
The current account deficit is structurally moderate (-0.9% of GDP on average over 10 years and -0.3% of GDP in 2024) and is covered by net FDI flows (2.1% of GDP on average over 10 years). Foreign currency reserves are comfortable and the Central Bank does not intervene in the currency markets, leaving the peso to float freely. External debt is also moderate (36% of GDP).
The current account has benefited from record revenues from tourism ($33 billion, or €28 billion, or 1.8% of GDP in 2024), which has reduced the deficit in the balance of services and, above all, remittances, i.e. money transfers from the diaspora ($64 billion, or €54 billion, i.e. 3.5% of GDP in 2024).
But these remittances, 97% coming from the United States, fell 6% in the first half of 2025 compared to the first half of 2024. It will be important to follow their evolution, given their role in supporting the purchasing power of many Mexican families. Shipments that are not made by bank transfer, equivalent to three quarters of the total, will be subject to a tax by the United States starting in January 2026.
On the other hand, the structure of its foreign trade explains Mexico’s difficulties in generating sustainable trade surpluses (excluding the Covid period), with a deficit in the goods trade balance of 0.4% of GDP on average over 10 years.
In fact, within the framework of North American industrial integration, Mexican imports of intermediate goods have represented no less than 77% of total imports since 2010. This has caused a strong correlation between the dynamics of imports and exports and has limited the local net added value.
At the same time, Mexico’s energy balance has been in deficit since 2015 (-1.2% of GDP), due to the decrease in oil production and dependence on refined products from the United States.
The current account balance is also affected by the significant deficit in the primary income balance (-2.7% of GDP in 10 years). This fact is related to the repatriation of profits and dividends of the numerous foreign companies established in the territory.
Take charge of your financial destiny
In short, tensions with the United States raise questions about the Mexican economic model.
Mexico, an emerging country, has seen its economic growth stagnate at the average level of developed countries in the last twenty years (1.7%), which places it among the ten least dynamic emerging and developing countries. The level and volatility of growth illustrate the limits imposed by the link to the US market. It also reflects the absence of powerful endogenous growth levers (consumption, public and private investment, financing of the economy by banks).
Preserving the advantages of its geoeconomic position, diversifying its export markets and making its growth model more autonomous by strengthening domestic demand are its main economic challenges for the coming years. To respond to them, it will be necessary to carry out eternally postponed reforms, particularly in fiscal and energy matters, public governance and the business environment.
The orientations of economic policies will be crucial to preserve public finances and, at the same time, respond to the important needs in terms of social spending, pensions and infrastructure, in order to unleash the growth potential and guarantee macro-financial stability, socioeconomic development and the energy transition of the country.
