Trump’s tariffs and accelerating trends in robotics and AI should be a wake-up call for Mexico.
Part 1: How did we get here?
Part 2: Why is a rethink of the Mexican economy necessary?
Part 3: What could a rethink of the Mexican economy look like?
The purpose of this three-part series is to reflect on the emerging trends of trade protectionism (tariffs), AI and robotics, consider the potential impacts on Mexico and foster a discussion on possible solutions. Please share your thoughts in the comments section and let’s have an inspiring and engaging discussion and debate.
Part 1: How did we get here?
Until recently, the world has operated under the premise that increased international trade and globalization would “raise all boats” and increase living standards for all who participated.
Since the end of World War II, this has been the dominant thinking of how to grow the global economy and bring about better integration. The model was to bring in more trading partners, sell more to each other, grow the market, increase standards of living for all and help ensure peace through the interconnectedness created by trade.
One by one, more countries were brought into the mix: first the countries of Western Europe, then Eastern Europe, Japan, Korea, Taiwan, the countries of Southeast Asia, China and of course, Mexico. Mexico was somewhat late to the party, being a relatively closed economy until the North American Free Trade Agreement (NAFTA) was signed with the United States and Canada in 1992. This agreement ushered in a wave of tariff-free trade agreements signed between Mexico that now include a total of 13 agreements covering 50 countries.
Mexico’s role in the free trade world was a natural and logical one — its lower cost of labor and geographic proximity to the United States made it a perfect co-production partner for manufacturing goods. When NAFTA was first signed, many in the U.S. feared that manufacturing jobs would move to Mexico to the detriment of American workers (the infamous “giant sucking sound” coined by Ross Perot).
Indeed, many new manufacturing jobs were created in Mexico, but it was China’s entry into the World Trade Organization (WTO) that ultimately had the biggest impact on U.S. workers and communities. Millions of jobs and countless factories went away as the production of many goods was moved to China.
The Mexican manufacturing boom
Early in my career, the first company I worked for was part of this trend. Originally with manufacturing located only in Wisconsin, in the early 1990’s the company bought a plant in central Mexico expecting to send manufacturing work there. Although some work was ultimately moved there, far more was sent to China. This was despite the fact that many of the end customers were actually in Mexico. It was cheaper to produce in China and ship to Mexico than to produce locally in Mexico.
Mexican manufacturing over time became increasingly competitive in certain market segments, and up until the COVID-19 pandemic, a “new normal” was settling in with China, Mexico and the U.S. all focused on the products that they could most competitively produce.
Of course, as we all know, the pandemic changed everything.
Supply chains broke down and companies everywhere began to question their manufacturing footprints. Words like nearshoring and friendshoring joined our vernacular, and Mexico seemed extremely well positioned to be a major beneficiary of the new manufacturing and production trends taking shape around the world.
Things changed quickly.
In 2023, Mexico, for the first time in over 20 years, became the leading supplier of goods to the United States. Mexico was clearly taking manufacturing market share from China and companies from around the globe were increasing production and reinvesting profits into their Mexican operations. In 2024, the country further increased its share of exports to the U.S., with products from Mexico representing over 16% and China falling below 14%.
As 2024 ended and Mexico closed the year with a record amount of Foreign Direct Investment (FDI), most people were feeling pretty good about how the country was positioned going forward.
Granted, the “new” component of FDI was concerningly low, but most people chalked that up to the uncertainty of the year given that there were presidential elections in both Mexico and the United States. Newly elected President Sheinbaum seemed to be far more “business friendly” than her predecessor, the inflation rate was coming down, the peso was stabilizing and both the global and Mexican economies seemed on firm footing.
But things changed quickly.
Trump’s election win brought about a sudden wave of uncertainty and attention to Mexico. Most of the initial demands from the United States were that Mexico control migration, crack down on the cartels, stop the flow of fentanyl and accept deportees. All important issues, but none that initially seemed to be a risk to economic momentum.
Few people expected that Trump would really attempt to undo the free trade agreement he proudly signed with Canada and Mexico during his first term as president. His initial threats of tariffs were directly linked to wanting to see more progress from Mexico on these non-economic issues. And to many people on both sides of the border, the argument seemed fair: “Mexico, help us clean up the issues that are causing problems in the U.S., and we will keep our free trade agreement intact.”
That being said, in just the past few weeks, the narrative from the United States on tariffs changed.
Trump’s tariff discourse takes a turn
Despite some initial quick and tangible progress from Mexico on the very issues that Trump initially emphasized, Trump has refocused the “need for tariffs” for economic reasons. Trump began to question the need for any manufacturing at all to take place outside of the United States. He continued to lament the lost jobs and broken communities caused by moving work abroad, and insisted that the focus needed to be on bringing these jobs back to the U.S.
And so here we are today. The most common argument against all of this is that the U.S. doesn’t have enough labor, nor the energy generation capacity, to be able to bring back a significant amount of jobs.
A logical concern is that moving work back to the higher-paid U.S. workforce and higher-cost manufacturing environment will cause significant inflation. But what if that is too overly simplistic or perhaps even an outdated explanation? What if companies could and do move significant work back, the workforce and energy production are found, and inflation is kept in check?
Let’s even completely forget about tariffs for a moment. Although it might sound like science fiction, consider the impact that increased robotics could have on the manufacturing workforce of the future. Consider what rapidly improving AI and factory “digital twins” could do to improve manufacturing efficiencies. Consider for a moment that we might just be on the brink of a new industrial revolution not seen in decades.
And then consider what this could all mean for Mexico and for what a rethink of the Mexican economy could look like. Part 2 will be published tomorrow in MND.
Thanks for reading.
Travis Bembenek is the CEO of Mexico News Daily and has been living, working or playing in Mexico for nearly 30 years.
President Sheinbaum is doing an excellent job with her country’s economy! Why do Americans think they know best how to run a country? At this moment Mexivo has a far healthier economy and future than the USA does. For some reason Americans wrongly consider themselves superior to Mexico
So true Sheryl. Americans have always thought that they were better ever since the Mexican-American War of 1846-48 when they literally stole half of Mexico’s territory.
i hate to say it… but it is Mexican , who too think Americans are superior…. just observation…………. and very big smiles when an ¨American ¨is kind and humble
Well said! This publication caters to that type of Americans.
Is it the growth of .3-1% vs. similar latin economies at 3+%, that shows the excellence? Or perhaps the downgrades from all three major ranking agencies due to Pemex debt and the removal of institutional protections including the removal of judicial independence?
Please explain why the US as the worlds largest economy is doing so poorly against the Mexican economy.
“. . . but it was China’s entry into the World Trade Organization (WTO) that ultimately had the biggest impact on U.S. workers and communities.” No, it was collective management’s decisions to move their manufacturing to China. Given the environment where for-profit corporations are now eternal and have but one directive (profit); where US laws and tax codes were changed to incentivize off-shoring; and the fact that the competition was certainly going to take advantage of those laws and codes, it was the correct decision for the boards of directors. Cynically, that’s about the same time the term “human resources” began to replace “personnel” in corporate parlance. But it fit then and fits more now. Add to that the shift in the Supreme Court to recognize a ‘corporate personhood.’ The companies themselves are more people than their laborers.
The above model is not sustainable except in a dystopian scenario in a sci-fi story. Perhaps a return to corporate charters that need to be renewed periodically upon showing good cause for continuing, or with a mandatory socially-relevant additional purpose in order to get a charter approved in the first place.
Mexico, on the economic rise, should take note. Lawmakers and ministries should study the trade policies and results of the trade policies of the US in the last 40+ years as a cautionary tale.
YES!
As a senior expat from Canada, I think your analysis is right on the mark. The current Government in the US is living in a past dream. Sadly when all the dust has settled, the successful relationship the US had with the world will be a thing of the past. In particular the successful relationship of Mexico, Canada and the US will be a thing of the past. The biggest loser will be the US.
Agree
Mr. Bembenek and a few commentators make good points and I also believe President Sheinbaum is the right person to lead Mexico. I am so impressed by her deliberate, pragmatic, and compassionate approach to governance. Sheinbaum is what Mexico so desperately needed after several corrupt administrations of political men enriching themselves and friends while ignoring the people.
Regarding the illegal migration into the USA, the cartel and fentanyl issues, Sheinbaum is effectively addressing those while cautiously working with Trump. Remember, much of this problem was enabled by AMLO by letting the majority of migrants freely walk through Mexico to the USA border. AMLO’s “Abrazos, no balasos” policy against the cartels was a complete concession to their business as usual.
Thanks to AMLO, President Sheinbaum was left a full plate to clean up! So I certainly can understand Trump using tariffs to compel Mexico to work on these areas.
Trump may continue with tariffs worldwide to encourage near-shoring, create American jobs, but he and the USA have bigger problems to deal with. A potential war in Iran, possibly igniting WWIII., an increasingly tense relationship with China, both economically and militarily, an lately, a growing dissatisfied MAGA base that could severally weaken his political power in next year’s election.
My advice to President Sheinbaum is to focus on making Mexico stronger economically internally and in the trade markets. Start negotiating increased trade with other countries and diminish dependence on the USA. Don’t worry so much about competing with it’s northern neighbor and concentrate on improving the wellbeing of Mexican citizens.
Interesting to hear a Canadian critique it’s southern neighbor…spoiler alert, your country has been turned into a laughing stock by your previous PM and heaven forbid that the Canadian population is dumb enough to elect Carney. The “loser” moniker will be permanently stamped on your collective foreheads.
The trade deficit between US and Mexico… $505b vs $334b…a $171b difference in Mx’s favor. $334b is nothing to sneeze at. China on the other hand buys almost nothing from the US. China runs a $295b difference in their favor on less overall trade. A lot of the US-Mx trade difference is because of tourism. The government can’t tell people where to vacation. Mx buys a lot of US manufactured goods. Can tariffs reduce the difference?…I doubt it. But it can wreck both economies. Mx needs to stop depending so heavily on US markets and diversify around the world. They have a highly skilled workforce.
Agree with both of you. “(Trump’s) initial threats of tariffs were directly linked to wanting to see more progress from Mexico on these non-economic issues. And to many people on both sides of the border, the argument seemed fair.” Really? What country is he living in?? Mr. Bembenek should continue his job as an editor, rather than giving unneeded advice to the brilliant president of Mexico, whose policies are supported by 85% of the people. He resides in this country as a guest and does not share the vision of “first, the poor.” It reminds me of my father’s Chinese friends who were foreign students in the US, who sent notes to their University football team’s coach telling him what he should do. And as president Sheinbaum will do, the coach – if he even read their notes – wisely ignored their advice.
I worked globally for 37 years. The term we learned in the 1990’s was ‘shareholder value’. This had changed from ‘delighting the customer’ which was still important, but the stock market would reward shareholders and it was our job to deliver their value back to them.
All of that is going to change with Trump “tariffs” that are going to hit the Mexican economy very hard during the next 4 years. Trump goal is to bring back thousands of jobs from Mexico by making it very hard for on the 25% exports. It’s not going to happen overnight, so President Sheinbaum has a tough challenge ahead of her.
Eventually over the next 4 yrs, the trade deficit between Mexico and the US will be reduced and Mexico won;t have a “trade surplus” anymore. This process will continue for the next 4 yrs. As the “dollar becomes more stronger, the “peso” is going to lose its value and hit 26(+) pesos to the dollar. Mr Benbenek is right and knows more about running a country than all the “dumb young politicization’s in Sheinbaum administration. The “water situation” is going to create a lot of problems for the Mexican farmersas the drought continues in Mexico with no rain in sight and therefore, more “serious problems” for the Mexican n framers (taxing tomatoes, avocados, etc. and whatever makes Trump makes American Strong Again. Tighten your belts for a very bumpy ride that about to “hit” Mexico economy.
I want to see Mexico working more closely with China they seem more intelligent and civilized than the evil empire that I come from in the USA .
Replacing one cult of personality with another? Be careful what you wish for
Oh yea that would be a really intelligent move. As RJ said be careful.
I am at a bit of a loss as to the expression “Bring Back Manufacturing Jobs” Those jobs are gone and if for example you were to create new steel mills or automobile plants or electronics factories, the jobs created would be far fewer than what was needed to do the same thing 50 years ago. Just look at steel plants in the US, they produce more steel today with less than 10% of the workforce. Now add in the capabilities that AI, Robotics, 3D printing etc will bring to manufacturing and other areas, and it won’t be a case of not having the labor force, you wont need a labor force. If you believe what the likes of Bill Gates, Sam Altman, and Jensen Huang are saying about the future labor force, then people better start thinking really hard about educating their populations so they can work in this new industrial age.
Many good points made by both Mr Bembenek and the commenters. There are too many variables right now to make a guess at what the future will bring. The midterms in the US will speak to the long term future of American politics and the new world order.
I do believe Mexico needs to diversify it’s trading partners, but the US will need what Mexico can provide if prices for food are to remain affordable. Mexico will need a water agreement if Mexico’s produce and beef producers are going to survive.
Tariffs are a tax, as such they fill government coffers. If the US is successful in bringing manufacturing back, that will reduce the items imported, thus eliminating that revenue source, which will need to be replaced with taxes on the citizens. Additionally, many areas where Trump placed tariffs during his 1st term require huge subsidies to keep the US competitive and the US has actually spent more than what was gained through the tariffs.
China is in a position to “win” the most at this point, they can and will replace the US as a trading partner with cheaper products. They also stand to replace the US as the dependable “steady” leader in the global community.
Another issue that must be dealt with for Mexico’s long term success is gaining control over the cartels. Just a little bit of research will provide proof of the cartels infiltration of almost every aspect of life in Mexico. The police & military, the government, agriculture, entrepreneurship, finance, industrial & manufacturing, on and on and on. Reviewing several candidates who hope to run for judicial positions have criminal records and/or proven ties to the cartels. This experiment has yet to play out and the world is watching.
Lastly, Ms Sheinbaum has a lot of “plans” and programs she has announced. All of which need money to finance. She and her administration talk an incredible path for Mexico’s future. However, if the economy takes a turn for the worse, NONE of these plans will be realized. I believe she’s gets far too much credit for what has ACTUALLY been DONE.
None of these concerns even begin to address the 4-6 years lead time needed to build new manufacturing facilities, or the fact that any new manufacturing will be centered around “right to work” States(and States will change laws and throw money at the fight to lure the manufacturers just like they do for Amazon today), avoiding unions, or the high pay promised. Doesn’t discuss how automation & AI will eliminate well paying low(er) skilled jobs. It may grow some engineer, robotics, and programming jobs to operate and maintain high tech & expensive robots and AI systems.
I look forward to the rest of the articles on this series, but back to my original statement, there are just too many unknowns at this time to accurately guess what tomorrow will bring. We’re not even 100 days into Trump’s presidency and it feels like it’s been 2 years. Every day seems to bring something that none of us has ever seen before. One last unknown is how serious Trump and his advisors are about military action to combat the cartels. Unfortunately, Mexico is in no position to do anything about it if they do. World condemnation means nothing to this administration. They’ve already shown the world that things are different today. Global sanctions… good luck. The sad thing is that this is not a movie or a dream. This is real and every day the narrative changes and reality gets more grim. Sit back & watch the 💩 hit the 🪭. To borrow from Caguiche, 🍿🍿🍿🥃🥃🥃. At least the NHL playoffs start Sat 🏒🥅 🤙✌️❤️
A thoughtful and in the spot analysis. The uncertainty created by tariff talk doesn’t just affect economics—it slows progress on innovation, infrastructure, and technological adoption at a time when Mexico most needs to be looking forward to building a more resilient, tech-driven, and globally competitive economy.
As usual your leftist bias is in plain view. There was no “tariff chaos” there was the very skillful use of tariffs to sober up and bring to the bargaining table countries that have been taking advantage of the previous weak administration. And it worked. Something like 80 countries are ready to negotiate more equitable arrangements.
Only the Chinese, who are really everyone’s problem want to escalate the conflict. They picked the wrong guy to do this with. You do not mess with Donald Trump. If Mexico continues to fail controlling its side of the border and the cartels causing problems in the U.S. all will find this out shortly.
Mexico needs to focus on improving the standard of living and buying power of its own people so they can afford the stuff Mexican factories turn out. The concept of a country living off exporting to other countries is obsolete. That is what the message should be here. The first step is to finally attack and defeat the criminal cartels in Mexico. It is time to unleash a Mexican version of Elliot Ness and his crime fighters.
Well said.
If you pretend that cartels don’t exist, they still exist. Mexico has one of the highest murder rates in the world. If you want to fix something start there.