Exploring Mexico’s Options
Washington’s southern neighbor isn’t as pliant as some think.
By: Allison Fedirka
The re-election of Donald Trump has brought Mexico’s relationship with the United States back to the fore.
The president-elect has made clear on several occasions his intent to crack down on immigration, going so far as to threaten sweeping tariffs against Mexico (and Canada) to induce them to toe the line.
The U.S. is by far the strongest of the three – economically, politically and militarily – so naturally it behooves governments in Ottawa and Mexico City to pay attention when the U.S. calls them out.
But Trump’s rhetoric belies the fact that neither Canada nor Mexico blindly do America’s bidding.
Mexico in particular has shown in the past it will push back when its national interests are at stake.
To understand why, let’s start with geopolitical theory.
At GPF, we believe: 1) that every country has interests it must pursue to fulfill its needs and, if possible, to acquire as much power as it can; 2) that every country will naturally encounter constraints in pursuit of its interests; 3) that when a country competes with another over the same objectives, pitting its interests against those of another, conflict ensues; and 4) that in any conflict or against any constraint, a country will do what’s best for that country.
A country’s behavior, then, will take a variety of forms in pursuit of its interests – it will enter alliances, it will disaggregate its enemies by carrot or stick, it will conduct trade with friends of convenience, whatever – but ultimately, it will play its hand as best it can, even if it’s dealt a bad hand.
This applies as much to the U.S. as it does to Mexico.
And Mexico has used the cards it was dealt especially deftly in the national security arena.
In simple terms, it has issued red lines it has forbidden Washington to cross.
In 1848, Mexico lost roughly half its territory to the U.S. with the signing of the Guadalupe Hidalgo Treaty, which ended the war between the two countries and established new national borders.
The U.S. also made a variety of military incursions into Mexico during the Mexican Revolution (1910-1920), including the U.S. Marines' occupation of the port of Veracruz in 1914 and the Punitive Expedition into Chihuahua and Coahuila states in 1916.
Consequently, Mexico is extremely sensitive about its sovereignty, even with the mighty U.S.
However, geographic proximity and a variety of shared interests dictate that they cooperate on any number of issues.
With respect to security cooperation, the two have focused on fighting drug-trafficking organizations and, more recently, unorganized migration flows.
Mexico has willingly accepted technology, intelligence, funding and even some Drug Enforcement Administration agents into its territory during their joint efforts to combat drug cartels.
But the Mexican government has always proscribed the presence of U.S. troops as an absolute nonstarter.
With respect to immigration, Mexico cooperates closely with the U.S. on its northern border but approaches its southern border security more independently.
(The U.S. works more closely with Guatemala than Mexico on that front.)
The key word here is cooperation.
The U.S. works with Mexico because it needs Mexico’s assistance on these issues.
This means Mexico has leverage to push back against the U.S. when it needs to.
One prominent example is Mexico’s lawsuit against U.S. gun manufacturers for their role in providing arms that illegally flow from the U.S. into Mexico.
The case could be seen as largely symbolic, of course – Mexico can’t directly change the inflow of firearms, and it’s still dependent on the decisions of U.S. law enforcement – but it can still gum up the works in the U.S. judiciary and create headaches for Washington in what should otherwise be a compliant relationship.
(Oral arguments are scheduled to be heard by the U.S. Supreme Court on March 4, 2025.)
Economically, their relationship is more complex and subtle.
Integrated production chains and trade dependencies that exist between the two countries practically demand as much.
In areas where there is a high level of co-dependency, such as automobile manufacturing, the parties opt for more indirect action to defend their interests.
For example, the United States has used the USMCA’s Rapid Response Labor Mechanism against Mexico more than 30 times since the agreement came into force, most often against factories associated with car manufacturing.
The mechanism is designed for members to quickly address instances of a company violating workers’ rights for collective bargaining.
It indirectly impacts Mexican automotive workers’ wages, which are key to Mexico's competitiveness and which, during negotiations, were hotly contested by the U.S. and Canada, where wages are much higher.
Mexico’s trade dependency on the U.S. makes this a difficult, though not impossible, area for the government to navigate.
According to the World Bank, exports account for about 42 percent of Mexico's gross domestic product, of which more than 80 percent end up in the U.S. (representing roughly a third of GDP).
The trade surplus works to each other’s benefit.
But here, too, Mexico has options.
The government has been trying to diversify its trade to reduce its vulnerability to the U.S. (and thus make it less pliant to Washington’s whims).
It has been pursuing economic and trade deals with other partners, including European countries and China, for this very reason.
Mexico has also been welcoming foreign companies that want to set up shop in its territory.
The presence of countries like China (among others) in Mexico makes the U.S. wary of goods labeled as “made in Mexico” since, while they meet the technical requirements for such a label, the parent companies belong to other countries.
Mexico has meanwhile devised more targeted strategies for areas more critical to national security.
It sends its crude oil to the U.S. for refining, for example, only to re-import the gasoline for its own use.
The country is effectively dependent on U.S. refineries for the vast majority of its gasoline supply.
In recent years, however, there has been a strong push to increase the country’s refining capabilities so that it can produce its own gasoline for consumption.
Complicating Mexico’s economic and trade relations with the U.S. is the regionalization of its economy.
Most foreign direct investment the country receives ends up in the north, close to the U.S. border.
Over the years, this has created a wealth and development gap between Mexico’s northern and southern regions.
The government’s current efforts to address this gap have involved large state-driven infrastructure projects to develop the south, creating their own versions of free trade zones with industrial parks in the south with the intent of quickly developing local economies.
Put differently, Mexico has demonstrated a willingness to pursue political reforms at the expense of foreign investor and business perceptions.
Two of the more controversial regulatory reforms included changes to the state's role in the electric sector and the nationalization of lithium mines.
The government presented these changes as part of the pursuit of national security: ensuring energy to the population and control over natural resources rather than conceding both to foreigners (a mistake Mexico made early on).
A more recent measure was a sweeping judiciary reform that will dramatically change how judges are selected for office (from appointments to popular vote).
These moves, among others, prompted businesses and investors to issue concerns about transparency, corruption and efficiency in the country.
Some of these changes have likely made Mexico less competitive.
But they suggest the government is aware of the potential risks of putting its interests above others’ and is implementing them anyway.
It hints that the government has identified areas where it can afford to take minor blows in exchange for greater long-term goals.
None of this means Mexico will be calling the shots in the U.S. anytime soon, but it does mean Mexico has some insulation from potential U.S. retribution – an important thing to keep in mind if new trade policies take effect next year.
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