In a polarized world marked by growing political and commercial tensions between major powers, Claudia Sheinbaum, Mexico’s newly elected President, is performing a delicate diplomatic balancing act. Against the backdrop of great interest from other leaders in Sheinbaum’s first international appearance since taking office at the G20 summit, this article explores Mexico’s strategic role in global trade and its position vis-à-vis the United States and China.
Starting position: Mexico’s trade with the United States and beyond
Mexico ranks as the 15th largest economy in the world, a member of the G20 and the OECD, and the top exporter in Latin America. Its strategic geographic location is ideal for trade, with access to both the Pacific and Atlantic Oceans, and as a bridge between Latin America and North America with a shared 3,000-kilometer border with the United States – the world’s largest consumer market. Mexico is the United States’ largest trading partner (both for imports and exports). Trade in goods and services between the two nations amounted to an estimated $855 billion, outpacing the $120 billion traded with Brazil. U.S. exports to Mexico reached $362 billion, while imports amounted to $493 billion, resulting in a trade deficit of $131 billion for the United States. Donald Trump has been vocal about his discontent with trade deficits. During his recent campaign, the Republican leader reiterated his proposal to impose 25% to 100% tariffs on Mexican goods if the Mexican government failed to prevent migrants from crossing into the United States. This is similar to actions taken during his previous mandate, where similar threats resulted in Mexico implementing stricter border controls along its southern border with Guatemala.
Main act: Mexico as a nearshoring hub for North America
The COVID-19 pandemic reshaped global supply chains and the United States’ strategy to reduce its reliance on China. This meant nearshoring production from Asia to Mexico in order for the North American region to remain competitive against other global economic blocs. Foreign Direct Investment in Mexico has boomed in the past five years consistently surpassing $30 billion annually and totalling more than $167 billion. However, it is not only the United States, Canada and Europe driving investment in Mexico. In recent years, Mexico has increasingly positioned itself as an attractive investment destination for Chinese firms. This is largely due to its strategic location and access to the United States through the US-Mexico-Canada Agreement (USMCA).
Walking the tightrope: Chinese products in the USMCA under Trump 2.0.
A recent trade dispute under the modernized USMCA put Mexico and Canada against the United States, as the nations debated the calculation of regional value content (RVC) required for tariff benefits. The United States’ position in this trade dispute centered on a stricter interpretation of the automotive rules of origin, ensuring that non-originating materials, such as Chinese auto parts, are not overly counted toward meeting the RVC threshold for tariff benefits. While Mexico and Canada prevailed in this dispute, the upcoming review of the USMCA in 2026, coupled with Trump’s negotiating style, may lead to a push for revisions to the agreement that prioritize U.S. interests.
Trump has consistently voiced concerns about the increasing dominance of Chinese companies in the electric vehicle market. As a result, he will focus on tightening rules of origin, protecting domestic industries, and reducing reliance on foreign supply chains in this and other sectors.
The high-wire challenge: Mexico’s leverage between the U.S. and China
At this year’s G20 summit in Rio de Janeiro, Mexican President Claudia Sheinbaum held two key bilateral meetings: one with U.S. President Joe Biden, and another with Chinese President Xi Jinping. These meetings highlighted Mexico’s challenging task of maintaining balanced relationships with two rival powers. However, with Donald Trump returning to power, she will need to weigh Mexico’s commitments under the USMCA against the benefits offered by closer ties with China. By strategically leveraging these relationships, Mexico could strengthen its position in global supply chains, facilitate technology transfer to drive innovation and the growth of Mexican companies (Mexico, while a G20 country, ranks only 56th on the Global Innovation Index), and develop critical infrastructure and clean energy projects.
Yet, this balancing act must result in tangible benefits for Mexico, particularly in addressing its three pressing challenges: improving safety by fighting against organized crime, reducing inequality by alleviating poverty, and managing migration through effective border management policies. Will Claudia Sheinbaum successfully maintain Mexico’s equilibrium as trade tensions escalate between China and the United States with Donald Trump re-entering the stage?
