Mexico's Export-Led Economy at Risk With Annual USMCA Reviews
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Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountorDonald Trump’s decision to keep the North American trade deal on an annual review cycle makes that proposition far less certain, threatening to deepen the investment slump already weighing on Latin America’s second-largest economy. The move, announced Wednesday by Trump’s top trade official, raises the prospect that companies will have to reassess their Mexico plans every year against shifting US demands on tariffs, regional content and rules of origin. That adds a new layer of risk for President Claudia Sheinbaum, who needs private capital to revive stalled growth and sustain the social programs that helped bring her party another sweeping election victory. Get the latest headlines, breaking news and columns. By signing up you consent to receive the above newsletter from Postmedia Network Inc. A welcome email is on its way. If you don't see it, please check your junk folder. The next issue of Top Stories will soon be in your inbox. We encountered an issue signing you up. Please try againMexico has the most at stake because its economy was built around access to the US market. Roughly 80% of its exports go north, leaving manufacturers, automakers and suppliers especially exposed to any process that keeps trade relations with Washington in a state of recurring uncertainty. “Mexico is the most vulnerable to trade disruptions,” said Diego Marroquín Bitar, a trade researcher at the Washington-based Center for Strategic and International Studies. Exports accounted for around 40% of Mexico’s gross domestic product in 2025, compared with about 31% of Canada’s GDP, according to World Bank data. By contrast, US exports represented only 11% of GDP in 2024. While the US decision to set up annual reviews doesn’t immediately change the rules for cross-border trade in North America, ongoing USMCA talks will most likely lead to higher regional-content requirements, or even a minimum threshold for US content in some industries, Marroquín said. That means firms are likely to keep delaying expansion plans or steer investment elsewhere. “The damage would show up less as sudden decline than as absence,” he said. “Investment that never arrives, supply chains that settle elsewhere, and a co-production system that slowly stops working as one. ”The chief executive officer of a major automaker, who spoke on condition of anonymity to discuss sensitive internal strategy, said the company has already been postponing investment decisions as doubts over the future of the trade deal dragged on. The company is reluctant to spend more on machinery upgrades and other technology without greater clarity because nearly all of its car sales go to the US, the CEO said. Beyond the economic hit, increasing investor uncertainty could also undermine a pillar of the Mexican president’s political agenda. Sheinbaum was swept to power on a pledge to continue generous cash-transfer programs to alleviate poverty that were greatly expanded under her populist predecessor, Andrés Manuel López Obrador, known as AMLO. While AMLO succeeded in finalizing the USMCA alongside Trump and then-Canadian Prime Minister Justin Trudeau, he also set in motion social spending that’s growing much faster than the overall economy. Even as Sheinbaum insisted on Thursday that she’s not nervous about what could happen to the Mexican economy, her plan to promote growth in large part by luring private sector investment has so far largely failed to materialize. Fixed investment in Mexico, a measure of spending on productive capacity, fell more than 3% in March from a year earlier, extending its contraction to 19 consecutive months, according to Mexico’s national statistics institute. Private investment dropped by nearly 5% in the same period, underscoring how companies are delaying or shelving projects. Mexico’s investment slide has hit the very machinery, construction and equipment spending needed to turn once-ubiquitous nearshoring hype into actual job-creating factories and high-value exports. While some analysts still think Mexico stands to benefit from its geographic proximity and preferential access to the American market, expectations have cooled considerably. ‘That’s Enormous’In comments earlier this week, Economy Minister Marcelo Ebrard, Sheinbaum’s top USMCA negotiator, conceded that the annual reviews amount to an added layer of uncertainty. But he stressed that they don’t threaten the sturdy foundations of North American trade ties. The local economic impact, he said, will hinge on how the process is managed, with Mexico seeking to ensure that each round brings fewer sources of friction. He added that US-Mexico trade talks set for later this month will be key to providing clearer rules for how the annual reviews will work. Such rules will prove crucial to mitigating uncertainty and advance key Mexican interests, like lowering tariffs on US-bound exports from key domestic industries like the auto sector, said Juan Carlos Baker, a former senior trade negotiator for Mexico. “No one likes uncertainty, it’s not ideal,” he said. “But we have to now understand how the trade relationship is going to work. ”Doubts over the future of Mexico’s trade ties to its northern neighbors have already dealt a heavy blow to its economy, according to a report from Banamex released on Wednesday. The report estimated that USMCA uncertainty shaved 0. 3 percentage point off GDP last year, or more than $5 billion. “The logic behind this estimate is that a significant part of the decline in private investment can be attributed to external factors, among these the trade agreement would be the primary driver,” the Banamex analysts wrote. More upbeat executives like Sebastián González Tron, chief investment officer at Mexico City-based real estate developer Thor Urbana, point out that Mexico nevertheless finds itself in a better position on US tariffs than many other nations that export heavily to the US market. That’s because the existing USMCA still shields its shipments from the higher levies Trump has sought to impose on many others. Telecommunications mogul Carlos Slim, Mexico’s richest man, also struck an optimistic note, looking past the current USMCA stalemate. “I think Mexico’s trade with the United States is always going to continue” even if the name of the deal changes, he said after news of rolling USMCA reviews broke. Slim played down the risks to Mexico’s export model, casting one of Trump’s well-known pet peeves as proof of the country’s advantage over the US. “We have a trade surplus of $250 billion,” he said. “That’s enormous. ”Still, many others think a future marked by USMCA annual reviews could keep relations with Washington permanently on edge, and give the US more leverage than it already has to extract concessions. That’s the view of Marroquín, the US-Mexico trade researcher. “The longer this process goes, the more uncertainty it generates,” he said. Join the ConversationThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. 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