Mexico: Trump 2.0 tensions wouldn’t be that bad, at first

• Outgoing Mexican President Andres Manuel Lopez Obrador on Friday described former US president Donald Trump as “not well informed” on immigration and economic issues, highlighting the potential for friction between the incoming Claudia Sheinbaum administraton and a Trump 2.0 administration, should Trump win the presidency.
  • While a Trump 2.0 administration is likely to pursue a number of policies ‘unfriendly’ to Mexico, we do not expect these policies to prompt a material break in the US-Mexico bilateral relationship during the first year of his administration, for the following reasons:

• 1) We expect Mexico to be exempt from the Trump administration’s threatened universal 10 percentage point tariff increase, given:
  • I) Mexico’s status as an FTA partner of the US.
  • II) The damage such a tariff would inflict on the US economy.
  • III) The fact that the USMCA…
    • Is Trump economic advisor Robert Lighthizer’s “baby” from the first Trump term, and
    • Is scheduled for review in 2026 ‘anyway’.

• 2) We do not expect Trump to impose immigration-related tariffs on Mexico, as he had threatened to do in 2019 (and again more recently), as we expect Mexico to agree to collaborate with him on several of his key anti-immigration policies, such as:
  • Reinstituting ‘Remain in Mexico’ policy, and/or
  • Accepting the deportation of Mexican illegal immigrants in the US, should Trump follow through on his threat to “round up and deport” them.

• 3) We do expect Trump would target Mexico´s role as a ´back door´ for Chinese inflows into the US (autos, steel, and aluminum in particular), but:
  • Regarding steel and aluminum:
    • We would argue recent events (e.g. here, here, here) show Mexico is comfortable cracking down on that back door, including for the purpose of protecting its own domestic economy.
    • We expect Mexico would be willing to ‘do more’ in the same vein, should a Trump administration demand it – for example:
      • Adding additional tariffs to steel and aluminum not originating in North America.
      • Requesting proof of origin for these inputs.
  • Regarding EVs:
    • We believe Trump’s threat to impose “200% tariffs” on Chinese electric vehicles entering the US through Mexico would not be particularly problematic, given:
      • A) The fact that few, if any, such vehicles currently enter the US.
      • B) This would need not spell doom for USMCA.
    • Meanwhile, should Trump take the different approach of threatening all Mexican autos with tariffs in the event that Mexico does not ensure no Chinese EVs enter the US through its territory…
      • We would expect Mexico would comply, and therefore avoid said-tariffs.

• 4) We do not expect a Trump 2.0 administration to conduct bombings or unilateral military operations into Mexico against drug cartels, as the former president’s camp has threatened.