Last month’s G-20 in Brazil showcased Mexican President Claudia Sheinbaum’s dilemma — how to curate Mexico’s balancing act between the U.S. and China while avoiding a spat with the incoming Trump administration.
In January 2025, Sheinbaum will face a wake-up call as President-elect Donald Trump returns to Washington looking to pick up where his administration last left the relationship with Mexico. Much like then, the twin issues of migration and trade will be top of mind as Sheinbaum contends with a spike in migration, a tepid investor climate, and China looming large.
Mexico under Sheinbaum presents a wealth of opportunities. In fact, by the end of Trump’s first term, Mexico had contained migration, albeit reluctantly; inked the U.S.-Mexico-Canada Agreement, which strategically modernized our bilateral trade relationship to align interests with the U.S. and abated China; and pushed for reshoring to sever our over-reliance on China in the supply chain.
All this was done under the prerogative of securing U.S. national interests. Four years later, a different picture has emerged in Mexico — one that is raising alarm bells here at home and even in Canada.
To be fair, Sheinbaum has inherited a complex dynamic in Mexico. Concerns over energy sector regulations have spooked investors and recent judicial reforms have thrown into question Mexico’s rule of law.
And then we have China. Mexico has been increasingly overtaken by China in the balance of trade terms, as its ballooning trade deficit with China stands at about $62 billion as of 2023. For context, in 2023, foreign direct investment in Mexico reached $36 billion. That same year, China announced $12 billion worth of investments in Mexico, approximately one-third of the total, making it a formidable force in the Mexican economy.
China is flooding Mexico with its products, and its companies are pursuing expansion. Among those are BYD and Geely, the two biggest players in the Chinese automotive industry, and Hong Kong-based Hutchison Whampoa, which controls key ports across Mexico. Logistics and manufacturing are critical nodes for investment and, right now, China dominates.
Unsurprisingly, the biggest expansion of trade and investment in Mexico for China has been in the automotive industry. Exports of cars from China to Mexico neared $4 billion in 2023, according to Mexican government data.
Compounding this, Chinese imports of parts and technology for EVs pose a direct threat, as they are re-assembled in cars that find their way to the U.S. market. China’s recent efforts in Mexico systematically seek to circumvent the USMCA. Aware of the issue, President-elect Trump threatened to place 100 percent tariffs on all cars exported from Mexico.
So where does that leave Mexico?
Sheinbaum’s reality is that President Trump’s policy priority will once again be securing our border, while keeping China at bay, especially in the Americas.
During his first term, President Trump pursued an aggressive border protection plan that initially prompted pushback from Sheinbaum’s predecessor, but he ultimately agreed to cooperate and support it.
Simultaneously, the White House understood that the key to stemming migration was economic prosperity. As such, the U.S. rolled out an ambitious investment-focused economic policy for Latin America, “America Crece” (Growth in the Americas), which sought to compete with China’s Belt and Road Initiative.
The thinking was simple: you must grow economies to address security threats and root out drivers of migration. Under Biden, migration policy and the “America Crece” initiatives were dismantled – and disastrous results ensued.
Mexico is sitting on a real opportunity but it needs to play its cards right.
First, nearshoring is real and the benefits are obvious. Geopolitical complexities make it urgent to de-couple China from our supply chains and identify alternatives for logistics and the transportation of goods.
The simultaneous conflicts in Russia-Ukraine and the Middle East have reinforced that our supply chains are vulnerable. We must bring them closer to home, however — divesting and de-coupling from China is very different than circumventing and back-dooring by China.
Second, investment is key, particularly in industrial assets and energy. However, global investors remain tepid on Mexico due to an uncertain business climate and China’s increased regional activity. They need to see an environment where the rules are clear, and competition is open and fair. Without concrete action to quell investor concerns, Mexico could lose out.
Last, but certainly not least, Mexico should prevent starting on the wrong foot with the new Trump administration. While President Trump and his team appreciate the importance of the bilateral relationship with Mexico, it will rightfully be unwilling to cede on its national security.
The USMCA comes up for its first review in 2026, so Mexico should work closely with the Trump administration to fend off China and to ensure a more stable and secure future for the Americas.
Mauricio J. Claver-Carone, a private equity investor, served as President Trump’s Senior Director for the Western Hemisphere at the National Security Council.
