Trump’s Victory and Mexico’s Need for Trade Diversification

Trump’s Victory and Mexico’s Need for Trade Diversification

While political analyses of this result dominate the front pages, in Mexico the impact goes beyond the headlines and quickly translates into economic and commercial concern. As is the case every four years, on the eve and during the start of a new U.S. administration, Mexico’s economic future hangs on a long and tense thread of uncertainty.

In the words of journalist Mauricio Hernández Cervantes, “when 80% of exports depend on a single client, as is the case of the Aztec country with respect to the United States, if the waters are calm everything flows smoothly, but at the slightest swell the macroeconomy falters and relations become tense”. Today, with Trump back in the White House, that “minimal swell” has transformed into a potential storm, and the new administration’s trade and immigration policies are already generating shock waves that Mexico cannot ignore.

What does Trump’s re-election mean for the Mexican economy?

The trade relationship between Mexico and the United States continues to be one of the most intense in the world, with Mexican exports to its northern neighbor exceeding US$78.287 billion in the first two months of the year alone. However, Mexico’s economic dependence on the United States has become a double-edged sword. The most relevant question is not whether there will be consequences with the new Trump administration, but how Mexico can protect itself from these fluctuations and political uncertainty.

Recent history offers clear examples of what is at stake. During his first term, Trump threatened to withdraw from the T-MEC (Treaty between Mexico, the United States and Canada) and applied punitive tariffs in key areas. His policies of immigration tightening and economic protectionism sought to protect U.S. businesses and unions, often at the expense of Mexico. Against this backdrop, Mexico is once again faced with the need to rethink its trade strategy and seek alternatives to reduce its hyperdependence on its partner to the north.

Spain: A Diversification Opportunity

In this context, the relationship with Spain and, by extension, with the European Union, appears as a viable and strategic option. As Hernández Cervantes points out, relations between Mexico and Spain have deep roots that transcend the merely economic and encompass history, culture and diplomacy. “Spain is concerned about what happens in Latin America and Latin America is concerned about what happens in Spain,” said Mexican writer Carlos Fuentes.

In economic terms, Mexico has already begun to look across the Atlantic. Over the last decade, Mexican investments in Spain have reached unprecedented levels. In 2022, 60% of investment capital from Latin America in Spain was of Mexican origin, with leading companies such as Grupo Bimbo, Cemex, and Grupo Modelo expanding their presence in strategic Spanish sectors.

The Advantages of Diversification

Trade diversification would not only offer Mexico greater economic stability, but could also provide a safety net against protectionist policies in Washington. Spain, as the gateway to the European Union, offers a market of more than 400 million consumers, which represents a vast untapped potential.

But the benefit would not be unidirectional. Spain, in turn, could take advantage of Mexico’s privileged relationship with the United States to access the North American market more easily. In addition, the more than 7,000 Spanish companies operating in Mexico would have more incentives to strengthen their presence, knowing that Mexico is seeking to build more balanced relations and less dependent on the United States.

Legal Challenges and Considerations

From a legal perspective, strengthening ties with Spain and the EU would entail both challenges and opportunities. Mexican companies must consider the implications of European regulations, from compliance with General Data Protection Regulation (GDPR) standards to adapting to European environmental and labor regulations. On the other hand, bilateral agreements between Mexico and Spain, as well as investment treaties, provide a robust legal framework that facilitates trade and investment.

Our firm is prepared to assist Mexican and foreign companies in this transition, advising in the creation of legal strategies that maximize the benefits of this diversification. Our experience in international and commercial law allows us to guide our clients through the complexities of transatlantic trade and investment.

The Way Forward

Hernandez Cervantes’ phrase resonates more than ever: “Maybe it is time that the old phrase ‘when the United States gets the flu, Mexico gets pneumonia’ is a thing of the past”. The key to this, as the author suggests, may lie on the other side of the Atlantic. However, the transition to a more diversified business model will not be simple and will require careful planning and strategic collaboration.

With Trump back in power, the question is not whether Mexico should diversify, but how and when it will do so. If you would like to discuss how our firm can help you take advantage of these opportunities in Spain and the EU, please do not hesitate to contact us.

Author: Ramiro de Iturralde