The United States long accepted a significant degree of Mexican domestic and foreign policy autonomy in exchange for support on matters deemed essential to U.S. national security. This informal “Autonomy within Limits” accord gave Mexico the freedom to implement policies the United States disapproved of but tolerated as essential to ensuring a stable ally on its southern border. At the same time, bilateral disagreements that inevitably emerged were usually resolved quietly behind closed doors. The Second Trump administration has turned this informal accord, dating to the 1920s, on its head. The Trump team aims to constrain Mexican policy autonomy much more sharply than in the past, and to loudly and publicly coerce Mexico into accepting these new terms of bilateral affairs.
This has produced a great deal of bilateral friction. It has also generated concern that certain members of the Trump team may convince the President to take actions that unintentionally destabilize Mexico. While this outcome cannot be completely ruled out, it is far from the most likely scenario due to the presence of more level-headed voices on the President’s foreign policy team and because of depth of U.S. reliance on Mexico. Instead, the U.S. is apt to continue taking advantage of Mexico’s deep economic dependence on the United States to carve out a new bilateral balance of power. This will sharply limit Mexican autonomy in economic, migration, and security policy and in its relations with China, areas seen as national security concerns by President Trump. Yet this new accord should also allow Mexico significant policy independence beyond these issues. For example, the current Mexican government should continue to have free reign in domestic politics to solidify the long-term political domination of the ruling Morena party.
President Trump’s transactional approach to international affairs sustains that the United States can only get a good deal when it negotiates from a position of strength. This is achieved by staking out extreme positions, reinforcing his willingness to implement his policies, and then negotiating. For Mexico, this has meant an end to the 100-year-old tradition of discussing disagreements in private rather than airing differences in public. It has also led to extreme U.S. policy positions on migration, security, and trade relations to coerce Mexico to accept U.S. demands.
Most visibly, this has included: 1) A 25 percent tariff on Mexican exports to the United States imposed on February 1, upending the current terms of bilateral trade contained in the USMCA. On July 12, Trump sent a letter to Mexican President Sheinbaum threating to increase this to 30 percent on August 1 if she does not increase Mexican security cooperation. These actions are designed to hit Mexico where it hurts (exports to the U.S. account for 30 percent of Mexican GDP) and force it to cooperate with U.S. priorities, in this case migration and fentanyl trafficking. 2) The refusal to exempt its USMCA partners from a 25 percent (and later 50 percent) U.S. global tariff on steel and aluminum imports and a 25 percent global tariff on autos and auto parts. 3) U.S. Treasury Department sanctions against three Mexican financial institutions on a “reasonable suspicion” of money laundering on behalf of Mexican fentanyl traffickers. This decision, which cannot be challenged in court, blocks these entities’ from accessing the U.S. financial system. And most recently, 4) a 17 percent tariff on Mexican tomato exports to the United States which took effect July 14.
If fully implemented, these U.S government actions would weaken the Mexican economy and could undermine political stability as well. True to its transactional approach to deals in international affairs, however, the Trump Administration has usually been willing to negotiate. On automobile tariffs, the two sides reached an agreement that exempts the USMCA compliant components in Mexican automobile exports, translating to an average tariff of about 15 percent, lower than most other auto exporters. On steel and aluminum exports, Mexico has begun to crack down on the trans-shipment of Chinese steel through Mexico to the United States while repeatedly reminding the United States of its steel trade surplus with Mexico. At the time of writing, the two sides were discussing a deal that could give a limited amount of Mexican steel exports tariff free access to the U.S. market.
On migration, Mexico reinforced cooperation with the United States based on a shared interest in limiting the amount of transmigration through Mexico to the United States, helping to produce a collapse in migratory pressures, for now. On security, Mexico doubled down on President Claudia Sheinbaum’s new, more activist security strategy to target fentanyl labs, drug traffickers, and imports of precursor chemicals. For its part, the United States agreed that the 25 percent tariff would only apply to non-USMCA compliant exports. The two sides continue to negotiate. In this context, the failure of negotiations to reduce the tax on Mexican tomato exports is a noteworthy exception, while the U.S. decision to prohibit three Mexican financial institutions from accessing the U.S. financial system is a striking escalation of U.S. coercion.
Since the three targeted institutions’ operations are dependent on access to the U.S. financial system, the Treasury’s action is likely a death sentence for them. Although they are relatively small (the two banks and a stock trading company account for just 2 percent of assets in the Mexican financial system), they play an important role in providing trade credits and as a trustee for Mexican retirement funds, real estate investment trusts, and government entities. The Mexican government thus took control of them to mitigate the damage. More troubling for Mexico, the Treasury’s statement announcing this action explicitly left open the possibility of future sanctions against additional Mexican financial institutions. Should the Treasury follow through with this threat, it could destabilize the Mexican financial system.
The Treasury’s action also left aside more traditional, behind-the-scenes policy alternatives to enhance cooperation against money laundering, even though Mexico had already increased its cooperation, including a new anti-money laundering law that was about to be approved. Instead, true to form, the Trump administration opted to exert maximum pressure, ensuing a 30 percent tariff announcement designed to force Mexico to adhere to U.S. security policy preferences. The two sides will now negotiate, or rather continue to negotiate, but Mexico will do so with the sword of Damocles hanging over its head.
What might the U.S. want? Previous statements by President Trump and his advisors suggest the possible unilateral use of U.S. drone strikes against fentanyl labs or demands that Mexico investigate and potentially arrest ruling party power brokers the U.S. believes are tied to organized crime. Either would be politically costly for the Sheinbaum administration, and the second could undermine the government’s stability, making it a red line for Mexico and ultimately counterproductive for the United States. Further militating against the likelihood of these demands is President Trump’s apparently good relationship with Claudia Sheinbaum. Nevertheless, neither policy option can be ruled out given Trump’s demonstrated policy unpredictability, but there is also another likely U.S. objective: to exert as much pressure on Mexico as possible in advance of the coming renegotiation of the USMCA to force Mexico to accept new trade rules benefiting the United States regardless of their impact on Mexico.
The actions and rhetoric of the Trump administration toward Mexico have produced a degree of bilateral conflict not seen since the 1980s, creating the impression that the relationship is on a knife’s edge. The U.S. could unintentionally destabilize a neighbor on which it relies to ensure national security and to resolve a series of domestic policy challenges. While far from impossible, this is not the most likely scenario. The depth of U.S. dependence on Mexico—it’s reliance on Mexico to sustain its global competitiveness, to manage its migration challenge, to reduce the flow of fentanyl into the United States, and to deal with China—militates against this outcome. More likely, the two neighbors will ultimately carve out a new bilateral accord, continuing to allow Mexican policy independence, albeit much more limited than in the past given the Trump Administration’s expansive understanding of U.S. national security interests. But this will take time. Until then, bilateral relations will be noisy and conflict-ridden. However, the end state should be a new equilibrium—a new “Autonomy within Limits” accord—that reduces Mexico policy freedom relative to what it enjoyed in the recent past but still leaves room for Mexican sovereign autonomy in most of its domestic politics and foreign affairs.
