With the inauguration of President-elect Donald Trump just around the corner, eyes are on the relationship with our southern neighbor and largest trading partner.
Trump has vowed to impose new tariffs on Mexico, among other countries, and said he would designate Mexican drug cartels as terrorist organizations.
Meanwhile, Mexico is facing its own internal challenges during its transition to a new presidential administration. A new report from Rice University’s Baker Institute of Public Policy examines what’s ahead with its 2025 Mexico Country Outlook.
Tony Payán, executive director of the Center for the U.S. and Mexico at the Baker Institute, spoke with Texas Standard about what’s ahead for the country. Listen to the interview above or read the transcript below.
This transcript has been edited lightly for clarity:
Texas Standard: What are some of the challenges you anticipate Mexico will face this year with new President Claudia Sheinbaum?
Tony Payán: Well, you know, she inherited a very difficult domestic situation in Mexico as it is.
I think Mexico’s fiscal policy is very, very tight. In fact, on Monday, just this week, she placed another set of bonds in the international markets for $9 billion. And that tells you how ambitious really the budget is. She’s practically ran out of money.
The the former president, [Andrés Manuel] López Obrador, left very little money and lots of liabilities in terms of pensions and expenditures – and of course, a number of other companies, including Pemex, that will need heavy subsidies. So that’s number one.
And then the foreign policy front, I think she’s facing really a very tough time. I think Trump is going to make Mexico one of his major targets. Mexico is immediately on the list because it has a big trade surplus with the United States, and Trump doesn’t like trade surpluses.
2026 is a year in which the agreement, the accord known as USMCA, will be reviewed. Trump will want some concessions on that score as well.
There was the issue of immigration, which we know very well. Mexico has been doing a good job at stopping immigration, but that’s not enough for President Trump. I think he will demand that all immigration be stopped, not just 50 or 60%.
And now fentanyl is on the table. It wasn’t during the first Trump administration, but it is now. And I think he is going to likely declare Mexican cartels terrorist organizations, which will enable U.S. agencies to target the cartels, even if Mexico doesn’t agree to our security framework. So tough times ahead.
What do you predict on the economic front? What will that outlook be for Mexico this year and what effects will that have on Texas and the U.S. economies more broadly?
Well, in terms of economics, I think one of the major problems that Mexico has is that it decided to implement 27 constitutional changes. Two of them are key here for the investment community.
One of them, of course, is a complete overhauling of the judicial system to make them elected – Supreme Court justices and circuit judges, circuit court judges and federal judges. And I think that’s introducing a lot of uncertainty into the business environment in how disputes will be resolved in Mexico in the future.
And then you got also the disappearance of a number of autonomous or independent regulatory commissions in the energy sector and competition and telecommunications. And I think there is a perception that by folding these into the various Mexican ministries, the playing field will not be leveled for all companies. That has stopped a lot of assuring investment in Mexico.
We expect growth to be around 1% – obviously not enough to absorb the number of young people in Mexico that will be looking for jobs. It’s also very likely that the Mexican consumer market will be depressed, and that is where Texas comes in. Texas exports important amounts of natural gas, gasoline and, of course, other products into Mexico. And if demand goes down in Mexico, obviously Texas businesses will also be affected.
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You mentioned the upcoming review of the U.S.-Mexico-Canada trade agreement. What challenges and opportunities do you foresee for Mexico and how should policymakers prepare?
You know, the opportunities are endless. I think there are many chapters that could be improved. I think the national content chapter could be flexible-ized a little bit for North America. I think the Chapter 16, with the TN visa, which is a very flexible, quick visa for Canadians and Mexico to integrate labor markets is another good opportunity.
I think the U.S. will want Mexico to make concessions on Chinese activities in Mexico. Mexico is going to be in a tight spot, but it’s also an opportunity to kind of comply with U.S. policy towards China and perhaps benefit from that.
I think the opportunities are really very, very good. Perhaps even additional investment in infrastructure.
However, I think that that depends on how many concessions Mexico is willing to make and what are the demands that Trump is going to have to make. And I think Mr. Trump is very unpredictable. So Mexico will have to really be quick on its feet and very flexible in responding to each of the demands.
And my guess is that Mexico will have some tough choices to make. One of them, of course, as I just mentioned, will be to go with the United States or to open up to Chinese investment.
Well, let’s delve a little more into public safety and security, as we mentioned. President-elect Trump has said he wants to designate cartels as terrorist organizations. How is Mexico dealing with organized crime and what do you expect in the year ahead?
You know, the big issue with former President López Obrador – and, of course, with Claudia Sheinbaum – is that they insist in denying that Mexico is a major participant in the fentanyl production chain. Obviously, India and China are the source of precursor chemicals for fentanyl. A lot of it is manufactured in Mexico and, of course, consumed in the United States. So this is a whole chain.
But Mexico insists in denying that this is not a problem in Mexico and that fentanyl is not produced in Mexico, even though the president has already taken some steps to bust some of the fentanyl laboratories in Mexico. And so this kind of a double take on this problem and the inability to accept really that Mexico plays an important role and then seek to create a new framework of security cooperation with the United States is going to get Mexico in trouble.
I think it’s probably best to preempt that and to go to Washington as quickly as the incoming President Trump takes office and begin to look for a new framework that will substitute the bicentennial framework, which substituted the military initiative in turn, and then begin to say, “okay, how we’re going to deal with this issue together?” But denying that there is a problem, I think it’s not going to fly. It’s going to create more problems.
And the “Abrazos no balazos” policy, which Sheinbaum inherited, is creating a problem for her because I think she really believes that they are a problem. [Omar] García Harfuch, her secretary of security in Mexico, is obviously invested in fighting the cartels, but she’s already faced some pushback from López Obrador, who I think might have some sort of relationship with these cartels.
And so she’s going to have to push back against Mr. López Obrador, which will be very, very hard, given that he still controls Morena, the party and, of course, the electoral base.
