The USMCA Review and the Mexican Economy: Between Renegotiation and Limbo

In the last decade of the twentieth century, the vast majority of economies moved toward opening their markets for goods and services, as well as capital. This opening—together with the curtailment of state intervention in the economic sphere and the prioritization in macroeconomic policy of fiscal prudence and low inflation—were hallmark features of the shift in the prevailing economic paradigm (Williamson 1990; Sachs et al. 2018). The drive toward the liberalization of trade and investment flows, combined with the difficulties encountered in negotiating multilateral trade agreements (Gallagher 2008b), led to a new emphasis on regional and preferential trade agreements within strategies of economic integration. In this context, the entry into force of the North American Free Trade Agreement (NAFTA) between Mexico, the United States, and Canada in 1994 inaugurated a new stage of globalization geared toward open regionalization, in which groups of geographically proximate economies signed preferential trade deals with each other (Estevadeordal and Suominen 2008; Hufbauer and Schott 2005). It also paved the way for preferential trade agreements with more far-flung trading partners, such as the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP)—of which Mexico and Canada are members, but from which Trump withdrew the United States in 2017. Notably, NAFTA also pioneered a new type of preferential trade agreement that imposed US-style standards in numerous nontrade areas, such as intellectual property rights, while also limiting governments' “policy space” in exchange for supposedly guaranteeing access to the US market—thus largely constraining public policy rather than the private sector (Gallagher 2008a; Rodrik 2018). The growing geopolitical tensions that have marked the present century, together with shortcomings in the international trade architecture—in which China and some of the dynamic economies of Southeast Asia have come to occupy leadership positions in manufactured-goods trade, with persistent trade surpluses alongside sustained and rapid expansion trajectories of their productive capacity—have transformed the global landscape (Autor et al. 2016; Baldwin 2016; Stiglitz 2018). The first Trump administration interpreted this situation, together with the deindustrialization of the United States and an upturn in manufactured exports in Mexico (Blecker 2016, 2019), as a motive for NAFTA to be renegotiated to secure a more privileged position for the United States. After a difficult renegotiation process, it was replaced in 2020 by the United States–Mexico–Canada Agreement (USMCA)1 (Arnaud 2024a; Blecker 2021; Blecker et al. 2021; Office of the United States Trade Representative 2020; Schott and Cimino-Isaacs 2019). Trump's return to the presidency in 2025, and his adoption of commercial protectionism as a central instrument of his economic policy (Baldwin 2025) have dealt a heavy blow to the operation and prospects of the USMCA and more generally to Mexico's export-led growth strategy. The abrupt imposition of double-digit tariff rates by the United States, including new tariffs levied (or threatened) on Canada and Mexico, have become major concerns for these countries' governments and business communities. For Mexico, the radical shift in US trade policy compels a rethinking of the country's development agenda, in both the short and long term. This reflection must cover a series of aspects concerning the transformation of the country's productive structure as well as its relationship with the patterns of production linkages and the dynamics of trade and capital flows under various scenarios (BEA 2024; Banco de México 2025c). On a more positive note, attention should be paid to leveraging the potential—albeit with heterogeneous and uncertain momentum—for nearshoring of production from other global regions (especially in Asia) to Mexico and other US neighbors. This strategy, as is well known, was originally stimulated by the earlier US–China trade war in Trump's first term, the Covid pandemic, the volatility of transportation costs, exchange rate adjustments, and the repercussions of all these factors through the disruption of thousands of global value chains. These factors led firms to reprioritize resilience over pure cost minimization in decisions about the location of plants and suppliers (Berasaluce 2024; Curzio 2024; Fernández and Bravo 2023; IMF 2024a; World Bank 2025). Yet, as will also be discussed below, the Trump administration is instead trying to force the reshoring of manufacturing production and jobs to the United States, not to neighbors or regional trading partners. NAFTA's entry into force in 1994 inaugurated a new dynamic in North America's regional integration, characterized by trade liberalization and the liberalization of investment flows among the 3 participating countries (Blecker 2019, 2021; Burfisher et al. 2019). As Figure 1 shows, with NAFTA already underway in the second half of the 1990s, foreign direct investment (FDI) in Mexico gathered strength (Banco de México 2025c; World Bank 2025). Indeed, the institutional framework guaranteed by NAFTA regarding enhanced protection of property rights, the creation of Investor–State Dispute Settlement (ISDS), the commitment to the free repatriation of and other a business and into Mexico 2019). the of a as it more an to between and of Mexico's In this in the which the first NAFTA was transformed into USMCA 2024a; de more in Mexico to the of new plants in and dynamic in the value of Mexico's exports and in from the earlier the and in which to of to for more than of that (Banco de México 2024; Fernández and Bravo to the of export-led growth by the administration of de Mexico's under NAFTA not to the of expansion (Blecker 2016, 2016; and and double-digit growth rates of manufacturing the of and linkages with the of the productive and the of investment into growth of than in the World Bank 2025). In growth of over Mexico's is the The of in economic in and other the is characterized by and in from the manufacturing and but both geographically and and factors of production and and of more and and Fernández and Bravo 2023; The agreement the expansion of firms and the development of regions in the North and of the Yet, the of the productive and a of the to these and as well as of Mexico, and For by the and from low by production and US This to a in the dynamic sector with the US with the that was largely and from global value (Blecker 2016, and of NAFTA was to the on the US which for Mexico Trump's in the United States (especially the In other exports the of economic their over the of the country's productive was and in this was that capital a expansion for its by the of in to the of in the growth rate of the and its more to in US manufacturing (BEA 2024; Blecker Fernández and Bravo was the of linkages of largely on the of the of the et al. and After a growing with the of the with the of NAFTA's as a for regional was it to be that it about a transformation of the productive structure that was to the on a of and development (Blecker 2016, and 2023; The to NAFTA Trump's first with his to the United States from the agreement in 2017. his Trump NAFTA trade The of the United States in the renegotiation was to the US trade with Mexico, with the of a of manufacturing jobs to the United States. was to supposedly or for in Mexico, such as the for foreign investment in the low in and the of Mexico's (Arnaud 2024a; Blecker 2021; Blecker and Blecker et al. of Trump's that was to about the of North America's trade and to about the Mexico to foreign The of this and was to to firms to their manufacturing plants to the United States. In the to the of and to a framework of for foreign Mexico policy (Gallagher Indeed, with the of the inaugurated in the and to the property of foreign in exchange for secure and preferential access for to the US 2018). In Mexico's for the USMCA to policy by for foreign to secure their in in the (Arnaud US in the of the renegotiation that have these of the first Trump to investment in For the is the manufacturing sector in North and that in Mexico under Trump administration of It to for North American and to a of US for For all it or the 3 of regional and for trade over and (Arnaud Blecker and 2019). The United in that renegotiation also a in and the imposition of on exports to the of the trade In the Trump administration including a under which the agreement have it a it have in Mexico by its as a privileged by the of the agreement uncertain for 2019). These and other radical in their to firms to in Mexico and instead to to jobs to the United States. the and and US economic the US some (Arnaud The into and in of a more open regional trade with and Trump's that to of various and to (Arnaud In that process, the Trump administration on the governments of Canada and Mexico, including to the or to into Trump also to a new tariff of on all US On the the first Trump administration imposed tariffs of on and on from Canada and Mexico with other countries in The and tariffs on the USMCA to the of the new trade agreement Blecker et al. 2021; Blecker and 2025) but and to for both in and 2025). The of the renegotiation was the of the new regional preferential trade agreement that replaced NAFTA on the Trump to US to a and to to among USMCA the of Trump's second in the of the new agreement to free trade or North and of the in USMCA to NAFTA to the for in the the regional for from to that of the value of the and in a must be of North American and that of the value of for must be by The new agreement also other new such as the protection of trade and and the of protection for (Blecker and 2019). was the of the which was between the United States and and to Mexico in the and public In other private have to their in the to an and that that be to NAFTA was to a of regional in that it was to trade and investment the USMCA is an more to the of the United States with each of the other and with its the USMCA Trump's return to the in the of North as a trading with guaranteed access and generally trade for goods between the 3 countries to from and other global the Trump to from Mexico in the first of USMCA Figure The US goods trade with Mexico from in 2019, the USMCA into to in and in This a in US from Mexico that was than the in US exports in the (Banco de México This of is the of Trump the renegotiation of NAFTA in and the new USMCA in which become to an agreement that foreign into Mexico was to of in the under NAFTA Figure 1 and IMF 2024a; World Bank de the of to Mexico in the United States, half of which to the manufacturing sector de among the 3 North American Mexico the in jobs by USMCA trade and which is to Trump to in The of exports and the sustained of to the in the first of the USMCA be to of the agreement the that the NAFTA renegotiation about Mexico's as a privileged for to the United States and Canada (Arnaud 2024a; the and by the United States in tariffs on a of from China under Trump in and under in Mexico's in the US in the was the disruption of global value in production and trade by the in (Berasaluce 2024; Fernández and Bravo Figure The of production to a regional of a major the of global or the US–China trade to as nearshoring (or in Mexico of its privileged position in USMCA and to the United States (Berasaluce 2024; Curzio Mexico become the to the United States, China Figure Yet, to is that a of this shift is for by In of the in in the US to earlier by other such as (Blecker and and In the for trade in North uncertain of the more into Trump's new and 2025, as discussed The USMCA is to a that its in and its or by for the are already underway in all 3 countries the of this the on the agreement is not in will to the agreement that a series of be to a of for or This be as a but it also be as an to to the agreement to new economic and as well as to to the of the the to the USMCA in a way that the of the is by the US under of the is the Trump (especially in his second on a trade with each US trading through tariff or the imposition of other and or that will open foreign markets to more US In this context, USMCA is to for Mexico, the first is to from the new US tariffs by Trump as these be with Trump in that new tariffs will not be imposed a framework must be to the that is under which the 3 countries open and preferential access for their exports to the of the This framework must also with the regarding regional property rights, rights, and other of this are a USMCA is to the transformation of the the to to as an to the United States should be a for Mexico in such a renegotiation and in the short term. This is the geopolitical marked by tensions by the Trump administration in trade and Mexico's to a of export-led growth on the US this to the the of NAFTA in as discussed the of to the of its be for Mexico, in the short The by the US the dynamics of trade and capital flows as well as the of foreign exchange and markets and which is an for Mexico's development and for that of the and 2018). to this are the of the international of production and trade the uncertain and for Mexico of flows by and the of in various of the (Berasaluce 2024; Curzio the of 2025, the renegotiation or of the USMCA is a for Mexico, which it and under US and tariff The renegotiation or it will in a that is but and a regional The of in The to a US a heavy marked by to to the Trump be States. It will be marked by tensions with Trump's new levied on and as well as on Canada or The is in the It will to a on and have an and to the of the as a rather than of a et al. and groups in the United States be in to Trump administration as in the earlier renegotiation of NAFTA (Arnaud it that the renegotiation or of USMCA will in and in a or the regional as by the governments et al. some that the second Trump administration will to the for in the USMCA 2025). For the United States to with into North which be a of or goods from will be to the of and for the regional of exports within the and to be in the of and US with on the US have their to of into the North American already in the for the of manufactured in Mexico by firms and Trump will and will also to to not in the of exports to the United States but in of the In are already in in to be of regional such as and It should also be that Trump and and is and both and are that the Trump administration will that an long as Trump or is in the The Trump administration is to for in trade and foreign investment in and that over as it in with other countries including the it is that the renegotiation or will become in regarding the of flows, and This of the trade with and concerns is a central of the second Trump administration in its with Mexico, and other The the is to a of which a of and also have to that that is a not a This is the and trade agreement in of will It is the and trade by the Yet, as discussed to that agreement in his second by new tariffs supposedly an and for on from Canada and This in tariff rates on and from which both countries as well as on which trade with USMCA of is as well as more is that will with not in the short term. This of the United international and of the of Baldwin the of the global trading by Trump and his It a for an manufacturing production is with that of the United States and growth largely on the economic (Blecker and Blecker As is well known, the tensions of the trade together with the of the and the between and in the global of production and trade on international value (Berasaluce The abrupt and of global value led major to the to the international location of their production plants and their trade As a to this nearshoring as an on direct investment flows, that the to plants to the markets for central in this shift is to to resilience and over of 2024; Fernández and Bravo The nearshoring production are within a regional that of USMCA or the In this context, Mexico as of the economies in the prospects for nearshoring and on with the United States, its in a preferential regional trade its with the United States the Trump and its as a major to the North these This on the in the or renegotiation of that to the of the as NAFTA to some Mexico's nearshoring prospects be enhanced (Berasaluce for Mexico, the Trump administration this It regarding the dynamics of trade, exchange and international capital The imposition by the United States of in and to into the investment and decisions of and this the US commitment to the or renegotiation of USMCA in Trump Mexico in his as a that of the United States by more than it and In numerous and Mexico as a not a In the USMCA to US by surpluses of Mexico and Canada with the United States, as NAFTA will the USMCA and its renegotiation it toward regional or will it be to the United States the renegotiation to a and framework with to preferential trade among the the of the These are for in in Mexico with the of to the of the by the dynamics of nearshoring or not and Trump the reshoring of production to the United States, by tariffs and trade the US as a instrument of his policy for and the of manufacturing In other to (or into the United States. production and manufacturing to the United States, which have long in Mexico (or other countries or for other such as and This of the Trump administration to and Curzio among other for the of the USMCA as the for North American through chains. in the Trump the is not The the United States, the Mexico, in the of trade by this administration and its this of trade and investment the for a of regional in which Mexico, and the United States of The United States will not be in the global it the of productive which be more in Mexico (or Canada or other trading a the more more for in all 3 is a will to Trump's reshoring is not the the of nearshoring for The of public in which into with also Mexico's prospects for are in of the not to for These the and of the and its as a for to the US and markets and that is is the from Mexico's which was the of the administration of in and of economic that firms decisions for their and production should countries that have and and economic including an and framework that property is by some to be for Mexico, as for in global trade and Fernández and Bravo the of this global capital long a to in (or production countries that have China or or is and is for the of or intellectual property in the In the have the of Mexico's is low and its generally as a that to Mexico's as a of have long the for and and American Bank 2025). In the short term, Mexico fiscal as of the of it that the administration of its in of a fiscal of to of This is among the in It the of to a fiscal policy of to public investment a to the which have characterized the and a It be that global are more in the of the and Mexico's markets rather than its public but about the of investment that from fiscal and the for fiscal to the exchange on nearshoring is the and of Mexico's development The development in Mexico, and the Banco de are from in the of for productive investment and is and is to by commercial by capital. in the sphere of and not for nearshoring but also for the development of the is the for the to be which the on the growth of productive in Mexico and Blecker 2016; it also the international of and the of investment in Mexico's and IMF and The of this is by the of an development policy to and a policy that be in with by the and by China and other economies et al. On this note, the in the of that Mexico tariffs to to on other from countries of Mexico's trade agreements be interpreted as an by the to with US a force in the is for a dynamic in regional and global trade and Bravo In this Mexico must in and to its force is for the of to it with the by global value Mexico will in international as well as in the of value and In the Trump administration and will attention to the in the USMCA from a it is that all countries a development and an policy in and that the under the Trump in this will have to be rather than the global will have to its commitment and of the that firms under the of to with standards and with limiting not it is not a in the USMCA Mexico and Canada should that the of and the of the United States must also in the into to Mexico on a dynamic development as is it for the to to the privileged access to the US that it under these trade are the and public about the that USMCA will not or that it will major that this privileged access in the renegotiation or with the Trump The is not The its economic toward the US through regional of the Mexico's trade on the United States be in the short term. In a of the agreement repercussions on economic and The of the country's and that a of the productive in this is and by the and by the USMCA and 2024; and it is to that the in 2025, into the country's growth and development prospects under the regional trade is with NAFTA's in 2020 with the of As some have economic growth The of the in the of a to production and into the of this policy as a for development et al. 2016; and of the is from a the cost it for the in the short the in the and long it is to a of productive transformation and into globalization with the country's development This must that such as manufacturing and services, with to and have with the emphasis on trade agreements with exports North The of through a and with a to the and linkages to is to a and development these not as of regional trade but rather as of is to the on Mexico's economic The in the USMCA should be to to the of the new tariffs imposed by Trump in and the imposition of Mexico should to that with the USMCA the United States a that not are to the tariff to and in the of regional for trade under USMCA not the United States an the other the prospects are not for Mexico, the and have to tariffs of while the United a with and As a Mexico's is that not the USMCA regional tariffs of The sector is as its exports a tariff of about the tariff is to that are not from the under the in the US In Mexico and Canada are under the of 2025) US tariff as their exports to the United States are to of to while and from are to a In and this is not to as all into the United States tariffs of but that from 1 to the is from which Canada and Mexico should in the USMCA the for Mexico is as is the for regarding the United States will to in the that will be on the trade and between Mexico and regional (or for to for USMCA tariff and the of plants to Mexico, among to Mexico is the by Trump on the USMCA renegotiation to such as and into the United States, and such as on for a is Trump will be to in the USMCA renegotiation process, or free to tariffs on Mexico and Canada in an and Yet, Mexico and Canada have but to with the Trump administration and the in a and The its or from the of Mexico's economic including the adoption of a series of more for trade (especially in a and framework that trade and investment among the with its it is an instrument in of a regional economic that the to as a of economic to growth and development in the This that a of among the such a be in the and of USMCA that the of by a of other and toward more and The of from the and by the US the stage of NAFTA and its transformation into the USMCA that Mexico difficulties with Canada and the United States and that the a dynamic for preferential regional trade and the in is to of the of Mexico and Canada The Trump and to in the trade or economic sphere through a other countries the United States. this in the USMCA the will not be in a is On 2025, US of that the USMCA will be renegotiated in and that the Trump administration will a transformation of the trade to the of jobs and US 2025, more for Mexico, in Canada or Mexico be in and for American 2025). This that the Trump will a of the not on and the of the North American but rather on direct investment in the United States and its trade USMCA that the Trump administration is to to to with of regional the relationship with of and investment and all with such as flows, and Mexico will have to of all its and its access to of or economic and within the United States, and with other to a renegotiation of the USMCA in to the to position the as an of within an of and the Mexico to the between policy and privileged access to the US and it should to more of the it is to some of the it is that the more of its development in the long Mexico these is a as of is in the The to and for on an earlier The for the and The of

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