The Future Of Mexico’s Trade Policy – International Trade & Investment

With the recent appointment of Claudia Sheinbaum as president of Mexico,
changes in Mexico’s economic and trade policies, as well as
pending tasks, are foreseen. In recent years, exports have grown,
and Mexico has advanced in negotiating key free trade agreements,
such as the USMCA, and “attracting(?)” foreign
investments. However, significant challenges have also emerged,
namely the growing dependence on Chinese imports, a
“concerning” trade deficit, the urgent need to renew
trade agreements like the EU-Mexico Free Trade Agreement (FTA
– EU – MX) and obtaining new or different trading
partners. Furthermore, President Sheinbaum now also faces pressure
from the Trump administration.

President Sheinbaum has made it clear that she wants Mexico to
become a key global player, taking advantage of new opportunities
such as nearshoring and improving trade
relations with other important regions. Is Mexico heading towards a
future that is promising for international trade?

Next, we will analyze how Mexico’s economy behaved during
the administration of Andrés Manuel López
Obrador.

I. Trade Activity in Mexico During the Last Six Years

Did trade and foreign investment changed with AMLO’s term?
The reality is that AMLO’s presidency faced serious challenges,
such as the NAFTA/USMCA negotiations, US-China trade war, and the
pandemic. All of this factors had an impact in the trade and
foreign investment statistics, as noted below.

A. How did exports and imports behave?

In the past six years, Mexico’s trade balance ¹ shows significant growth in both
imports and exports, with a sharp decline in 2020 due to the
COVID-19 pandemic. However, a strong recovery is observed starting
in late 2020,with sustained increases in both exports and
imports.

During 2022 and 2023, trade volumes reached significant peaks,
reflecting a growth in trade activity. The Post-pandemic recovery.
Exports, while maintaining a slight lead over imports, follow a
synchronized pattern, indicating a relatively balanced trade
balance.

By the end of the administration, Mexico consolidated its
position as an exporting power, especially thanks to its
international trade programs (like IMMEX) and its trade
relationship with the United States and Canada under the USMCA.
However, Mexico also saw an increase in imports from countries such
as China, which mainly explains our trade deficit of $4.868
billion. Did China diversify or channeled its exports as a result
of the US-China trade war?

i. Mexico-U.S. Trade Relationship.

In recent years, Mexico became the main supplier of goods to the
U.S. market, displacing China for the first time in 21 years.
This situation is largely explained by the trade war between the
United States and China, the tariff preferences provided under the
USMCA, the relocation of supply chains, among other reasons.

On the other hand, U.S. imports in Mexico have decreased as
noted in the chart below. Are US imports being substituted by
Chinese imports? The chart shows Mexican Export to the US (Blue
Line), while US imports into Mexico (red line) (2024 data to be
updated).

i. Mexico-China Trade Relationship.

The U.S.-China trade war also had another effect: the
redirection of Chinese exports to Mexico. Nevertheless, the
economic relationship between Mexico and China seems to be taking a
different direction.

In July 2024, Ministry of Treasury Rogelio Ramírez de la
O stated that the trade relationship between Mexico and
China is not reciprocal. The Minister specified that Mexico
buys $119 billion from China per year, but China only buys $11
billion; in other words, Mexico has a trade deficit of $108
billion. Following these recent statements, changes in foreign
trade programs are foreseen that could impact established supply
chains.

B. Foreign Investment

In the last six years, foreign investment in Mexico grew
steadily. Since 2018, foreign investment has increased steadily
from $17.842 billion to a record $31.096 billion in 2024, as
shown by the following chart from the Ministry of Economy.

However, the reality is that “new” foreign investment
fell by 21% over the past six years ($75.506 billion from 2013 to
2018 vs. $59.749 billion from 2019 to 2024) if we break down the
types of Foreign Direct Investment according to statistics from the
Ministry of Economy.

In other words, during López Obrador’s
administration, foreign investment was sustained by the
reinvestment of company profits (red line), while “new
investments” (blue line) plummeted despite the alleged
nearshoring boom.

II. What can we expect with Sheinbaum as President?

There are questions regarding the future of Mexico’s trade
policy with the arrival of Claudia Sheinbaum to the presidency.
Important events are approaching with the president’s entry,
including USMCA’s review, or better said renegotiations as
called by Trump. On the other hand, questions arise, such as what
will happen with the pending conclusion of the EU-Mexico Free Trade
Agreement? Below, we will explain what can be expected with the new
mandate of Claudia Sheinbaum.

A. Plan Mexico: New Import Substitution Industrialization
Policy?

Due to the alleged lack of reciprocity in the trade relationship
between China and Mexico, the loss of competitiveness, and
transportation costs in the Asian country, the Mexican government
believes this is a great opportunity to reduce Mexico’s
dependence on China and attract investments from different origins.
Thus, an import substitution industrialization policy is being
announced under the umbrella called “Plan Mexico.”

Before joining the GATT in 1986, Mexico had an import
substitution industrialization policy. In practice, this policy
required the importer to “ask” the then SECOFI for
permission to introduce a specific way material or merchandise
because there was no Mexican supplier (hence the Spanish name
“pedimiento de importacion”, which refers to a petition
or permision to import). This policy had to be eliminated because
it was (and still is) incompatible with GATT rules as updated in
the WTO.

On the other hand, the Ministry of Economy also announced plans to modify
the Sectoral Promotion Programs (PROSEC) to encourage national
production of certain materials and reduce Asian imports. In words,
the ” import substitution industrialization” seems to
focus on eliminating tariff preferences for certain inputs listed
for specific sectors of the PROSEC, which could have the effect of
increasing production costs if supply sources cannot be
diversified.

And as if this weren’t enough, it is reported that the textile industry is asking the new president
to use “import substitution industrialization” as an SOS
plan to address Chinese imports. But again, the import
substitution industrialization plan translates primarily into
immediate measures of tariff increases, although measures to stop
imports via courier through e-commerce stores will be soon adopted.
These industries are not chosen at random, as they represent a
significant part of the products imported by Mexico:

Update: Measures Against Textiles

In December 2024, the Ministry of Economy raised tariffs to
textile products and included a list of textile products that could
no longer be subject to imports under the IMMEX program. For more
information, visit our alert.

Conflicting Messages

In summary, government officials submit a contrasting scenario
is presented. On one hand, in August 2024, the Ministry of Economy
announced the document “Tax Incentives for Investment”
highlighting the intention to promote trade and investment,
including the addition of tariff items MXHTS 5402.20.02 and
5902.20.01 concerning raw materials for the textile and clothing
industry that may benefit from PROSEC; on the other hand, Minister
of Treasury Jesús Ramírez de la O stated that if 10%
of what is currently imported from China could be produced in North
America, Mexico’s GDP would increase by 1.4 percentage
points.

It can be assumed that the ” import substitution
industrialization ” will be the strategy that President
Sheinbaum will adopt to reduce the import of Asian products into
Mexican territory. To be a successful policy, it will require not
only incentives but also improving competitiveness conditions, such
as energy and security, among other factors.

B. New International Trade Policies

According to recent statements from Sheinbaum, the new Minister
of Economy, Marcelo Ebrard, has several tasks ahead,
including: the review of the USMCA and promoting development
hubs.

i. Update: US-Mexico

As noted, there is a risk of a “tariff war” between
Mexico and USA as a result of the fentanyl crisis and organized
crime, as well as the trade balance, according to the new US
administration. For more information, visit our recent post
regarding the tariff suspension.

ii. USMCA Review or renegotiation?

The first review of the USMCA, scheduled for 2026, is crucial
for Mexico. According to recent statements from Katherine Tai,
the U.S. Trade Representative, the review will have to be
uncomfortable. To make an analogy, it will be like a visit to the
dentist. It is expected that the three countries address issues
such as the dispute settlement mechanism, climate change, and the
impact of China in their economies.

Furthermore, it should be noted that Mexico still has unresolved
issues with the United States under the USMCA, such as the ban on
genetically modified corn (recently revoked), the ban on glyphosate, the dispute regarding the energy policy, and
the rules of origin for the automotive sector.
Likewise, the U.S. has several measures or trade barriers in its
sights, such as the delays in COFEPRIS health licenses, and the
steel sector, among others.

Needless to say, the Trump administration is calling for a new
negotiation.

iii. Development Hubs

As promised in her presidential campaign, Sheinbaum will seek to promote 12 new development
hubs. These so-called “Welfare Hubs” intend to be
development zones that make better use of resources, promoting
investment and trade through tax incentives. However, these
incentives are much lower than those anticipated for the Special
Economic Zones, which never came into operation. One of the most
prominent plans is the Isthmus Train, which aims to replace the
Panama Canal.

iv. European Union Mexico Free Trade Agreement

On January 2024, the Ministry of Economy and the EU Commission
announced (again) the conclusion of the
modernization of the European Union-Mexico Free Trade
Agreement.

III. Conclusion

The future of Mexico’s trade policy under the presidency of
Claudia Sheinbaum is filled with uncertainties and challenges. Some
key issues, such as the renewal of the EU-Mexico Free Trade
Agreement (EUMXFTA), are advancing, but others, like USMCA’s
disputes, are yet to be resolved. Other pressing matters such as
the Trump tariffs are creating uncertainty in the economic context.
If the USMCA review or renegotiation is “intense”
provoking renogotiations, further uncertainty will be added.

The import substitution industrialization policy promises to be
difficult to complete, while the question remains whether Mexico
will renew high tariffs and follow a protectionist strategy. For
example, will electric vehicles from China and other origins
continue to be exempt from tariffs despite the intention to fight
climate change? This does not appear to be the current policy. Will
the basic basket food facilitation
measures be renewed to fight food inflation? Nobody knows.

Additionally, the SAT has announced stricter measures for IMMEX
companies, audits, and origin verifications, adding complexity to
Mexico’s value chains. In short, although the opportunities are
great, the government faces numerous pending tasks and critical
questions that must be addressed to ensure a stable, competitive,
and fair international trade environment.

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