Will Trump's election win upend Mexican exports, nearshoring and the USMCA?

Mexico is facing a host of issues with the return of Donald Trump to the White House, specifically regarding trade and immigration.

Mexico displaced China as the US's main trade partner in 2023. Mexico, the US and Canada also have the USMCA agreement in place, which took effect in 2020 and was negotiated during Trump's first term. A review of the deal is set to take place in 2026.

The day before the election, Trump again threatened Mexico with tariffs of 25% and even up to 100%, if what he called the "invasion of criminals and drugs" into the United States is not stopped, burnishing his protectionist bona fides and causing the peso to depreciate.

During election day, as his advantage over Democratic Party candidate Kamala Harris became more evident, the peso reached a low of 20.8 to the dollar, although it clawed back some of the losses on Wednesday.

“The reaction of the markets was more or less as expected. As Harris' chances of victory diminished and Trump's increased, and along with the [latter's] majority in congress, we saw a general rise in the dollar, positive movements in the stock markets, increases in treasury bond yields and Bitcoin at historic highs due to the policies that Trump would seek to implement,” James Salazar, deputy director of economic analysis at CI Banco, told BNamericas.

"These are immediate effects and as the dollar rose across the board, the Mexican peso is one of the currencies most affected, [and] although depreciation was close to 3%, the reality is that it was not very strong as part of it had already been anticipated," he added.

In the money market, the rate on 10-year treasury notes rose 17.8 basis points to 4.45%, which director of economic analysis at Banco Base Gabriela Siller attributed to “speculation that the policies proposed by Trump, of cutting taxes and imposing tariffs on imports, could have an impact on inflation.” The Fed could also become more cautious in cutting the interest rate, Siller wrote on X.

Protectionism

Salazar highlighted that “trade policy appears very protectionist, [so] the country will have to be very careful about how it negotiates” with the Trump administration.

In practical terms, Salazar predicted that the Trump victory will particularly impact exports, the relocation of supply chains to the country or nearshoring and the USMCA review.

In addition, Trump also promised to impose tariffs of at least 60% on imports from China. Part of that protectionism is based on growing suspicions that Chinese companies have found ways to avoid US tariffs by going through third countries, such as Mexico.

In addition, more Chinese companies are opening plants in countries where they can sell to the US to circumvent the tariffs that would be incurred if the products were produced in China, and Trump promised to impose tariffs on goods that Chinese companies manufacture in Mexico, regardless of USMCA rules.

Under the trade deal, Mexico benefits from the elimination of tariffs when selling to the US, which is a major reason why it could attract investments – although many are still only announcements – and hope to benefit from nearshoring. The deal is also a reason why Mexico became the US's main trade partner after 16 years of Chinese dominance.

“The [US] trade war with China will surely continue or may intensify, although it has already intensified under Biden, and although we could benefit a little from the greater participation in the United States, if at the same time it imposes additional tariffs on us, this advantage is not clear,” said Salazar.

The analyst expects Trump's return to Washington to affect nearshoring, which would not only become an economic issue but also a matter of national security. Trump "will surely intensify threats regarding migration and we will hear a lot about migration linked to the commercial issue."

Finally, Salazar said that, although the review of the USMCA is scheduled for 2026, with the start of consultations in 2025, it will be brought forward in practical terms due to the majority achieved by the Republicans in congress, and will begin once Trump takes office on January 20.

During the review, trade officials from the US, Canada and Mexico will make recommendations on how to improve the deal and encourage agreements.

While some analysts believe tariffs would de facto imply the elimination of the treaty, for the former chief negotiator of the USMCA for Mexico, Kenneth Smith Ramos, said such a scenario is unlikely.

“There’s a minimal risk of canceling the USMCA in 2026. If an agreement is not reached, we will have a scheme of annual revisions starting that year,” he recently told BNamericas.

“If Trump increases tariffs inside North America with its main trade allies, the retaliation could be immediate and have a high cost for the US. The USMCA represents a sort of life insurance for Mexico and Canada,” Smith Ramos added.

President Claudia Sheinbaum said at her daily press conference on Wednesday that Mexico will “maintain this high-level dialogue [with the US], that is, on migration issues where I said that in Mexico migration at the northern border has decreased by 75% from December 2023 to date in a humanitarian manner and there is a plan for migration.”