last month's Brazil's G-20 introduced Mexican President Claudia Sheinbaum's dilemma: how to manage how Mexico strikes a balance between the United States and China while avoiding conflict with the incoming Trump administration.
In January 2025, as President-elect Donald Trump returns to Washington to try to resume his administration's last remaining ties with Mexico, Sheinbaum will receive a wake-up call. As then, immigration and trade will be two issues at the top of Mr. Sheinbaum's agenda as he grapples with a surge in immigration, a weak investor climate and a looming China.
Mexico under the Sheinbaum administration offers a wealth of opportunities. Indeed, by the end of President Trump's first term, Mexico had shut down involuntary immigration. The United States-Mexico-Canada Agreement was signed, strategically modernizing bilateral trade relations to align interests with the United States and weaken China. It also promoted reshoring to cut off excessive dependence on China in its supply chain.
All this was done under the prerogative of securing America's national interests. Four years later, a different situation has emerged in Mexico that is sounding alarm bells not only at home but also in Canada.
To be fair, Sheinbaum inherited the complex power relations in Mexico. Concerns over regulation of the energy sector have spooked investors, and recent judicial reforms have cast doubt on Mexico's rule of law.
And then there's China too. Mexico's trade deficit with China is expanding, and it is being overtaken by China in terms of trade balance. $62 billion As of 2023. For context, in 2023 foreign direct investment in Mexico will be $36 billion. In the same year, China announced $12 billion Investments in Mexico account for approximately one-third of all investments, making it a major force in the Mexican economy.
China is flooding Mexico with its products, and the country's companies are seeking expansion. These include BYD and Geely, the two biggest players in China's auto industry, as well as Hong Kong-based Hutchison Whampoa, which controls major ports across Mexico. Logistics and manufacturing are important nodes for investment, currently dominated by China.
Not surprisingly, China's biggest expansion of trade and investment in Mexico is in the auto industry. Car export from China to Mexico approaches 4 billion dollars In 2023, according to Mexican government data.
Compounding this is the import of EV parts and technology from China, which is then reassembled and distributed to the U.S. market, posing a direct threat. China's recent efforts in Mexico seek to systematically circumvent the USMCA. Recognizing this problem, President-elect Trump warned: 100% customs duty Applies to all vehicles exported from Mexico.
So where does Mexico go?
The reality, Scheinbaum said, is that President Trump's policy priorities are once again securing the border while keeping China out, especially in the Americas.
President Trump pushed for an aggressive border security plan during his first term, initially drawing opposition from his predecessor, Sheinbaum, but eventually agreeing to cooperate and support it.
At the same time, the White House realized that the key to stopping immigration was economic prosperity. Therefore, in order to counter China's One Belt, One Road Initiative, the United States has launched an ambitious economic policy called “America Crese'' (Growth in the Americas) that focuses on investment in Latin America.
The idea was simple. We must grow the economy to address security threats and eradicate drivers of migration. Under the Biden administration, immigration policy and the “America Crese” initiative were dismantled, with dire consequences.
Mexico has a great opportunity, but they need to play their cards right.
First, nearshoring is real and the benefits are clear. Geopolitical complexities make it imperative to isolate China from supply chains and identify alternative means of logistics and transport of goods.
The simultaneous conflicts in Russia, Ukraine, and the Middle East have once again highlighted the vulnerability of Japan's supply chain. But we have to bring them closer to their own countries. Divestment or separation from China is very different from Chinese circumvention or backdooring.
Second, investment is key, particularly in industrial assets and energy. However, global investors remain indifferent toward Mexico due to the uncertain business environment and China's increased regional activity. They need to understand an environment where the rules are clear and competition is open and fair. Without concrete action to address investor concerns, Mexico could suffer losses.
Last, but certainly not least, Mexico should avoid a false start with the new Trump administration. President Trump and his team recognize the importance of the bilateral relationship with Mexico, but Mexico is understandably unwilling to compromise its national security.
With the USMCA scheduled for its first review in 2026, Mexico will need to work closely with the Trump administration to fend off China and ensure a more stable and secure future for the Americas.
Mauricio J. Claver-Carone, a private equity investor, served as senior director for the Western Hemisphere on President Trump's National Security Council.
