In the past week, Canadian Prime Minister Carney has struck “strategic partnerships” with China and Qatar and delivered explosive remarks at the World Economic Forum in Davos.

The consequences could be far-reaching.

At stake is the critical $1.9 trillion USMCA free trade deal. The continental free-trade agreement, which replaced NAFTA in 2020, undergirds much of North America’s economy.

This year, it has come up for review. With official negotiations slated to launch imminently, any action could derail the deal.

As USMCA review nears, Canada branches out

Carney’s whirlwind week began with a trip to Beijing, the first in nearly a decade by a Canadian Prime Minister. There, he announced a “landmark” trade deal with China — unfreezing relations with a country he called “Canada’s biggest security threat” last spring.

The deal, though limited in scope, is a symbolic shot at the U.S.

Canada will lower tariffs on electric vehicles, set in tandem with the U.S. two years ago, in exchange for agricultural market access as well as energy purchase and auto investment discussions.

More important than the deal, however, is its framing.

Carney called his trip to China the “foundation of a new strategic partnership” for the “new world order” — a phrase Chinese officials often use themselves to reference what they consider is American decline. “The multilateral system has been eroded,” he went on to say, and “coalitions of like-minded countries” with “focused areas of cooperation” can replace it.

He followed that with the announcement of another strategic partnership with Qatar, before delivering a forceful speech at Davos. Without naming U.S. President Donald Trump, Carney referenced American hegemony and accused “great powers” of using economic integration as weapons. The rupture, he said, in the “rules-based international order” will “not be restored.”

Leaders from around the world gave a standing applause.

Mark Carney in Davos: This is the speech of a statesman – a riposte to Trump and to western defeatism pic.twitter.com/57ptXIiDrD

— Lionel Barber (@lionelbarber) January 20, 2026

Having received advance notice of the China deal, Trump reacted immediately, first saying that the USMCA is “irrelevant,” then that the U.S. “doesn’t need Canadian products.” He didn’t walk back either comment. 

A divorce seems unlikely for the U.S. and Canada: 75% of Canada’s exports still go to the U.S., while China is a distant second at 4%. However, any breakup’s collateral damage is likely just beginning. 

Bad timing for Mexico

For Mexico, the timing couldn’t be worse. With the imminent launch of the USMCA review, the U.S., Canada and Mexico are set to renew, renegotiate, immediately terminate or sunset the free trade agreement. 

Though it’s early days, a fifth option seems increasingly plausible: The current three-way agreement could fracture into bilateral deals.

While the USMCA is critical to all three countries, Mexico — both the most export-dependent and U.S. market-dependent, with 81% of all exports going to the U.S. — has the most to lose if the pact splinters. About 85% of all Mexican exports enter the U.S. duty-free because of the USMCA. 

By comparison, 30% of all U.S. international trade is from the USMCA. For the United States, this does not amount to as much as Mexico; just 11% of U.S. GDP comes from exports. U.S. business leaders argue that exports alone fail to capture the USMCA’s value; for them, the supply-chain cost savings and integrated continental infrastructure create a major economic advantage for the United States.

Referencing this support among the American business community, Mexican President Claudia Sheinbaum has so far remained optimistic on the deal’s review. “Those who most strongly defend the [USMCA] are American businesspeople,” she said.  

Still, it may not matter.

Trump and his U.S. Trade Representative Jamieson Greer have mulled breaking the USMCA into bilateral agreements since last year. The rationale is clear: Bilateral deals hand the U.S. significant leverage — even at the risk of costly supply-chain disruption.  

Recognizing this, Canada is diversifying. Beyond China and Qatar, Carney has accelerated trade negotiations with ASEAN, Mercosur and at least 10 other countries. On offer are the energy superpower’s rich mineral resources, large domestic market with high per-capita spending, scaled logistics infrastructure, and a ready-to-invest coffer of funds.

Mexico lacks these advantages. American market access is a key pillar of Mexico’s value proposition, especially in a friend-shoring global investment environment. Capitalizing on this, Mexico has carefully aligned itself closer to the U.S. in recent years. 

Those close U.S. ties may now backfire for Mexico.

What are Mexico’s options?

As Canada builds itself out, Mexico is finding itself increasingly locked in. After years courting Chinese manufacturers — notably BYD’s now-postponed $2 billion plant — Mexico raised tariffs on non-free-trade agreement countries (including China) up to 50%. Meanwhile, security cooperation with Washington continues to intensify. 

As the USMCA review begins, expect the U.S. — flush with leverage — to demand more investment screening mechanisms, expanded security operations, stricter rules-of-origin, invasive labor provisions and even foreign policy alignment.

Mexico is now the top buyer of U.S. goods, beating out Canada

Already, the USMCA limits certain foreign policy moves; Article 32.1 restricts free trade deals with “non-market countries” — code for China. But newer U.S. deals go further, introducing “poison pills” that transform agreements “from purely commercial instruments into tools for managing partner countries’ broader foreign policy orientation,” according to analyst Simon Evenett of Global Trade Alert. 

At Davos, Carney offered a framework for escape from this dynamic. “Middle powers must act together because if we’re not at the table, we’re on the menu,” he said. “When we only negotiate bilaterally with a hegemon we negotiate from weakness. We compete with each other to be the most accommodating.” 

“This is not sovereignty,” Carney concluded. “It’s the performance of sovereignty while accepting subordination.” 

Mexico’s choice will be binary: Accept these sovereignty-limiting demands or lose American market access. While Canada can credibly threaten to walk away, Mexico cannot. 

The tradeoff goes unstated. Does deeper U.S. integration bring greater prosperity? President Sheinbaum argues yes — North American unity is essential to “compete with China.” 

Still, her rhetoric may not be enough. 

“Remember, Mark,” Trump said on Wednesday, “Canada lives because of the United States.” Carney’s moves could still invite retaliation; the risks, for both Canada and Mexico, are sky-high. 

As Carney walks his tightrope between Washington and Beijing, Mexico may find its options narrowing. The question is no longer if middle powers can chart their own course, but whether Mexico still has the choice. 

Logan J. Gardner is a Wharton-educated content strategist, writer, photographer and filmmaker based in Mexico City. Sign up to receive his newsletter, Half-Baked, peruse his blog or follow him on Instagram for more.

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Mexico’s role in this system is often framed through an outdated oil lens.

Forty years ago, that framing made sense. In 1982, Mexico exported roughly $24 billion, and almost 65% of that was crude oil. Today, Mexico exports more than $620 billion, with oil representing just 3.5% of the total, while manufacturing accounts for nearly 90%. In other words, Mexico’s economy has transformed from being oil-dependent to manufacturing-driven — and manufacturing is, above all, energy-intensive.

This transformation has tied Mexico and the United States together through energy flows that are structural, not optional.

Natural gas: The backbone of integration

Looking only at imports, the integration is even clearer: virtually all of the natural gas Mexico imports — over 99% — arrives via pipeline from the United States, reflecting a high degree of physical and commercial interdependence between the two energy systems, particularly U.S. producers in Texas, for whom Mexico has become a critical and stable export outlet.

Natural gas now anchors Mexico’s electricity generation, industrial production, and export manufacturing — much of which directly supports U.S. supply chains.

Refined products & crude: A circulatory system

The result is clear: under many trade measures, the United States now runs an energy surplus with Mexico, meaning the value of U.S. energy exports to Mexico exceeds the value of Mexican energy exports to the U.S. This surplus supports U.S. GDP, sustains jobs in energy production and refining, and strengthens America’s position in global energy markets.

Data source: U.S. Energy Information Administration, U.S. Imports by Country of Origin, Exports by Destination, U.S. Natural Gas Imports by Country and U.S. Natural Gas Exports and Re-Exports by Country.

Mutual benefits embedded in infrastructure

As documented by the U.S. Energy Information Administration, this integration is neither temporary nor marginal. Pipeline shipments of U.S. natural gas to Mexico have increased by an order of magnitude since the early 2000s, and today the majority of U.S. pipeline exports flow south of the border rather than overseas.

U.S.-Mexico Border Crossing Natural Gas Pipelines and Expansions of Mexico’s Domestic Pipelines

Data source: U.S. Energy Information Administration and Comisión Nacional de Hidrocarburos, Mexico. “U.S. natural gas pipeline exports to Mexico have grown in recent years as the domestic pipeline network within Mexico continues to expand.”

Why policy certainty matters

This is why energy policy cannot be an afterthought in debates about economic strategy or geopolitical competition. Mexico is not peripheral to U.S. energy security — it is central to it. American energy production, refining, and export capacity are increasingly linked to Mexican demand, infrastructure, and industrial growth. Likewise, Mexico’s ability to sustain its manufacturing base and capture nearshoring opportunities depends on continued access to U.S. energy and predictable investment conditions.

If the United States wants to remain an energy powerhouse, it cannot do so alone. It’s not just about drilling in Texas or New Mexico — it’s about smart partnerships, strong trade frameworks and working closely with reliable neighbors.

Seen this way, energy fits naturally with the other themes in this series. If AI is the brain of the future economy, energy is the bloodstream. And today, that bloodstream flows across North America.

Catch up on parts 1-5 of Could Mexico make America great again? here:

• Part 1: An introduction
• Part 2: A primer on China
• Part 3: Zeroing in on the demographics
• Part 4: About that trade deficit
• Part 5: How the AI race changes the game 

Pedro Casas Alatriste is the Executive Vice President and CEO of the American Chamber of Commerce of Mexico (AmCham). Previously, he has been the Director of Research and Public Policy at the US-Mexico Foundation in Washington, D.C. and the Coordinator of International Affairs at the Business Coordinating Council (CCE). He has also served as a consultant to the Inter-American Development Bank.

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Mexico’s previous president, AMLO, inflated growth rates during his term in part with significant federal government spending. From new airports in Mexico City and Tulum, to the new Maya and Interoceanic trains, to the Dos Bocas mega-refinery, the federal government was doing more than its part to prop up growth. The big question many had about these projects was, “Are they one-time growth spurts, or are they medium or long-term growth enablers that will help fundamentally improve future growth prospects for the country?” Infrastructure projects, if well-thought-out, should be medium/long-term growth enablers. But they do take time, and most certainly these projects are not yet helping to provide a pick up in economic growth.

Foreign direct investment announcements continue to hit record highs, but they also take time to impact the economy and sometimes don’t happen at all. The recent increase in the amount of “new” investment dollars in FDI (versus pure reinvestment of profits) has been an encouraging sign. Tourism numbers are up 13% year-to-date (with spending up over 6%), which is great news. But tourism is not big enough to significantly move the country’s total GDP numbers yet.

In the past, exchange rate devaluations of the Mexican peso would often provide a consistent growth spurt. Over a 25 year period and up until the COVID pandemic, the peso has averaged an annual devaluation versus the US dollar of roughly 10%. Given Mexico’s relatively low inflation and low wages, this consistently helped ensure that the cost of doing business or investing in Mexico kept getting cheaper, at least in dollar terms. This could be counted on year after year, and provided a good base case for making investments in the country. But given that the peso has actually strengthened while costs have increased now for five years, the certainty around that long-held assumption is over. So while a significant devaluation of 20% or more in the peso would most certainly provide a growth injection, there have been no indications that one is likely. In fact, the peso has continued to strengthen lately, with it recently hitting 18 month highs against the USD.

With the Trump administration making new and ever-changing tariff threats towards Mexico on a near weekly basis, what is Mexico to do? How can the economy get growing again at or above its potential?

1. The most impactful (albeit not very likely) scenario that could get the economy growing again would be a quick and favorable (for Mexico) outcome on the USMCA negotiations. This would provide clarity for businesses and investors on the role of Mexico in the North American supply chain. Too many companies right now do not have certainty as to whether Mexico going forward will have free trade with the U.S., low tariffs, or perhaps even higher tariffs compared to other countries. With that degree of uncertainty, it seems unlikely that Mexico’s economy can get growing upwards of 3% again.

In the wake of Trump’s tariff chaos, Mexico’s economy needs a rethink: A perspective from our CEO, Part 3

2. Another scenario would be for President Sheinbaum to push through reforms allowing for more foreign investment in the areas of energy extraction, production and distribution (current monopolies held by PEMEX and CFE). These economic segments could and should be significant growth drivers of the economy, yet are currently doing nothing to help. If Sheinbaum was able to use her popularity to push through reform in these areas and demonstrate that Mexico is “open for business” in shale gas production, oil extraction, energy production and distribution (natural gas, solar, wind) — it would spark a massive inflow of investment. Given Mexico’s long history of protectionism in these areas, it would not be an easy task. But given her nearly 70% popularity, if anyone is up to it, it’s Sheinbaum.

3. Governments often look for “shovel-ready” infrastructure projects that can get started right away and quickly impact the economy. Sheinbaum has some of these already started with a significant nationwide highway improvement plan. She is also doubling down on passenger train investments throughout the country. Both are good productivity enablers over the medium term, but will not have a meaningful impact in the short term.

4. Public education continues to be a big issue in Mexico, as I have previously written about here. This in turn impacts labor productivity growth and ultimately is a drag on the economy. Sheinbaum needs to prioritize this issue, perhaps by announcing some public-private partnerships that could accelerate education attainment and results. A real commitment in this area would likely be matched by private investment that could provide increased training programs in higher skill jobs that require the ability to use AI and robotics.

5. Tax policies are often used to accelerate investment and growth. Sheinbaum could announce initiatives ranging from accelerated depreciation of capital equipment investments, special tax treatment for AI and robotics investments, and tax incentives for companies that add new hires and invest in training and upskilling their workforce. All of these would steer private capital into areas that could quickly make an impact on the economy.

6. The Sheinbaum administration could create special incentives and economic development areas to further accelerate the growth of Mexico’s service sector. As I have previously written here, I think that Mexico has tremendous untapped potential in many segments of the service economy. New initiatives, new tax policies, and accelerated government approvals in service sectors like education, senior centers, housing (for Mexicans and expats), health care, wellness and tourism would further diversify the economy away from manufacturing and oil. With the right support, all those sectors could be hitting double-digit growth.

Of course, none of these options are easy. But if Mexico is serious about sustainably growing its economy at or above 3%, and in turn serious about improving the lives of its citizens — not only with minimum wage increases but also actual economic growth — it will have to tackle most of them.

Travis Bembenek is the CEO of Mexico News Daily and has been living, working or playing in Mexico for nearly 30 years.

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Beneath the memes, prompts and productivity hacks lies a serious geopolitical race. And in that space, the U.S.-Mexico relationship may be one of the most important — and underappreciated — dynamics shaping trade and economic policy in the years ahead.

At its core, AI leadership isn’t just about algorithms. It’s about hardware, energy, data, talent, resilience and national security.

Models don’t train themselves in the cloud — they require massive computing power, physical servers, advanced chips, secure supply chains and uninterrupted infrastructure. In that sense, AI looks a lot more like manufacturing than software. And that’s where North America — and especially Mexico — enters the picture. The USMCA’s digital trade framework is becoming a national security tool, not just a trade one — governing data flows, infrastructure and trust in ways that directly shape AI competitiveness (Inter-American Dialogue).

As tensions with China persist and export controls on advanced chips tighten, the United States faces a simple challenge: how to scale AI infrastructure fast, securely and close to home. This is a race where the digital world is moving more quickly than the physical one. AI leadership ultimately rests on semiconductors, and today roughly three-quarters of global chip manufacturing capacity remains concentrated in East Asia, with advanced production highly exposed to geopolitical risk (US-Mexico Foundation). (No need to revisit what happened during COVID).

One concrete example: Mexico is now home to major investments in AI server and “superchip” assembly. Nvidia’s next-generation GB200 servers are being assembled in Jalisco through Foxconn, alongside a growing ecosystem of suppliers relocating from Asia. These facilities aren’t designed for the Mexican market — they’re built to serve North American strategic needs. This is nearshoring not as a buzzword, but as an AI supply-chain strategy. To understand why infrastructure location matters so much, it helps to look at where the physical backbone of the digital economy actually lives.

AI doesn’t live in the cloud — it lives in data centers. And those data centers are highly concentrated geographically, making location, energy and connectivity strategic assets.

Hardware, however, is only half the story. AI also runs on data centers — lots of them. Mexico is rapidly becoming an extension of the North American digital backbone. Multibillion-dollar investments from Microsoft, AWS and others are turning cities like Querétaro into critical nodes for cloud and AI workloads. Enabled by USMCA digital trade rules, these data centers operate within compatible regulatory and privacy frameworks, allowing U.S. firms to expand capacity, improve latency and build redundancy without leaving the region.

This distributed infrastructure matters for resilience. AI systems can’t afford downtime.

In scenarios ranging from cyberattacks to natural disasters or energy stress, having computing capacity spread across the continent strengthens continuity. Mexico and Canada aren’t alternatives to the United States — they are fail-safes. And Mexico’s comparative advantage in this ecosystem isn’t about replicating advanced chip fabs, but about strengthening the assembly, testing, packaging and integration layers that make AI hardware scalable and resilient across North America (U.S.-Mexico Foundation). This isn’t happening by accident. Mexico’s next phase of industrial and digital policy is explicitly aligned with this opportunity.

CFE opens 269-MW combined cycle power plant in Querétaro to boost Bajío grid

Mexico’s industrial and digital infrastructure plans — including data centers, energy, and advanced manufacturing — are increasingly aligned with North America’s AI and nearshoring strategy.

Then there’s talent. AI leadership ultimately depends on people, not just machines. Mexico produces thousands of engineers and computer science graduates every year, many already embedded in North American firms and research ecosystems. Mexican universities graduate over 130,000 engineers annually across degree levels, along with nearly 3,000 master’s graduates in computer science or related fields — the highest number in Latin America. Talent mobility under the USMCA, combined with shared standards and regulatory coordination, accelerates innovation while keeping critical capabilities inside the region.

Seen through this lens, AI becomes a familiar story. Just like manufacturing, trade and energy, the United States doesn’t need to “do it all alone.” It needs a trusted, integrated regional system that lowers risk, increases scale and preserves strategic autonomy. Mexico is not a competitor in the AI race — it is an enabler.

(Just as a footnote, AI related to physical security enforcement, arms and potential war is a huuuge topic, of which I’m not capable of writing about, but keep that in mind as well.)

AI dominance won’t be decided by who writes the best prompt. It will be decided by who controls the full stack: chips, servers, energy, data, talent and trust. The upcoming 2026 USMCA review isn’t just a procedural milestone — it’s a narrow strategic window to lock in North America’s AI advantage before other models define the rules instead (Inter-American Dialogue).

In AI, just like in trade, the future isn’t about decoupling from your closest partners.
It’s about building with them.

Catch up on parts 1-4 of Could Mexico make America great again? here:

• Part 1: An introduction
• Part 2: A primer on China
• Part 3: Zeroing in on the demographics
• Part 4: About that trade deficit

Pedro Casas Alatriste is the Executive Vice President and CEO of the American Chamber of Commerce of Mexico (AmCham). Previously, he has been the Director of Research and Public Policy at the US-Mexico Foundation in Washington, D.C. and the Coordinator of International Affairs at the Business Coordinating Council (CCE). He has also served as a consultant to the Inter-American Development Bank.

The post Opinion: Could Mexico make America great again? How the AI race changes the game appeared first on Mexico News Daily

As 2025 came to a close with the peso touching below 18, we learned that the peso appreciated more in the year against the USD than it ever has in modern history (since 1994 to be exact). Think about that for a minute. Literally no one was expecting the peso to appreciate last year — the average prediction of the “expert analysts” was a depreciation to 21 — and instead it got stronger! At the risk of getting a little wonky, think of all of the events of last year that, in theory, should have caused the peso to weaken in 2025:

1. President Trump’s constant threats against Mexico for everything from drugs, water, immigration, trade and more.

2. President Trump’s “America First” policies, threatening the value proposition of Mexican manufacturing.

3. President Trump’s tariffs against Mexico and in particular the critical automotive, steel and aluminum industries.

4. Record amounts of new investment announcements in the U.S. that, if anything, should have made the USD stronger versus emerging market economies like Mexico.

5. The (I would argue incorrect) rhetoric from the opposition that the newly elected President Sheinbaum was anti-business and had socialist policies that would turn the country into the next Venezuela.

6. Mexico’s 2025 economic growth was terrible, with GDP growing less than 1% for the year versus nearly 3% for the United States and 3% globally.

7. Mexico lowered its interest rates much faster than the U.S., making the peso less attractive compared to other countries that lowered interest rates more slowly. (It is often the rate of change that is more impactful on a currency versus the absolute rate.)

8. Mexico’s inflation rate is higher than that of the U.S.

9. Even the thought of the USMCA trade agreement not being renewed is potentially catastrophic for Mexico.

Any one of these events could have caused the peso to weaken in a typical year, and the peso historically has devalued for less impactful reasons. In fact, the peso has on average devalued against the USD around 10% annually over the past 30 years!

Pros and cons of the ‘superpeso’: A perspective from our CEO

So what is going on here? And what should we expect for 2026? Let’s start with what standard economic theory (which arguably was very wrong in 2025) would tell us about what should happen to the peso in 2026:

1. Mexico’s economy will grow slower than the US economy — downside risk for the peso.

2. Significant USMCA renewal risk (economic tensions) throughout the year — downside risk for the peso.

3. Expansion of the war on drugs to include Mexico (geopolitical tensions) — downside risk for the peso.

4. Mexico’s inflation rate remains higher than the U.S. rate — downside risk for the peso.

5. Mexico’s interest rate continues to be lowered due to slowing economy — downside risk for the peso.

In fact, I don’t see any factors in the short term that (using standard economic theory) would point to a strengthening of the peso in 2026. But of course there is often an important element to exchange rates that don’t follow standard theory.

So what could be the logic around a continued strengthening of the peso (or even maintaining the current rate) this year? Here are a few:

1. Markets and companies globally increasingly recognize that Mexico is critically important to the U.S. as China tensions increase.

2. Faith that the USMCA agreement will be renewed and potentially even strengthen economic ties between the U.S., Mexico and Canada.

3. The belief that the U.S. war on drugs could actually benefit Mexico, making it more attractive to investment.

4. Increasing confidence in President Sheinbaum’s policies being pro-growth and business-friendly.

5. The belief that Mexico might begin to open up its energy industry to foreign investment.

Mexico in the past has relied on the constant devaluing of the peso to keep the country competitive and attractive for foreign investment. Those devaluations reliably provided a short-term boost to the economy, but kept the country from making the kinds of investments resulting in long-term growth. 2026 is going to be a key year for Mexico to demonstrate if it is worthy of its strong currency, or if it will fall into the trap of a peso devaluation to juice the economy. Stay tuned … MND will be your front row seat for every tick of the peso. It is going to be fascinating to watch.

Travis Bembenek is the CEO of Mexico News Daily and has been living, working or playing in Mexico for nearly 30 years.

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It’s a wide and complex discussion — covering deficits, tariffs, international institutions, subsidies, dumping and plenty of other trade-related issues. For this piece, I want to focus on trade deficits because they are the real driving force behind Trump’s commercial instincts. Of all the texts in this series, this one probably brings out my inner David Ricardo the most. I’ll try to keep it digestible.

Over the past decade — especially the last eight years — the U.S.-Mexico trade relationship has intensified like never before. As most of you already know, Mexico and the United States are now each other’s top trading partners, both in exports and imports. Mexico is the largest buyer and seller for the U.S., and vice versa. But given the difference in economic size — roughly 16 to 1 (U.S.: ~$30 trillion vs. Mexico: ~$1.86 trillion) — and Mexico’s export-oriented model, Mexico naturally exports more than it imports. That dynamic has deepened Mexico’s trade surplus with the United States.

When Trump first took office, the U.S. trade deficit with Mexico stood at around US $63 billion. By the end of 2024, it had grown roughly 2.7x, reaching $171 billion. Well, well, well — that sounds like terrible news for Mexico with Trump back in office. And yes, it could be bad news. But only if we keep measuring trade deficits the wrong way.

(Picture me rolling up my sleeves — here comes the fun part.)

Why isn’t it enough to measure trade balances simply by adding and subtracting goods crossing borders?

Imagine you have a “trade relationship” with two entities. One is a car mechanic down the street; the other is a convenience store on the other side of town. Sadly for you, you run a $100 deficit with each. But here’s the twist: you’re also a car mechanic. Last week, you sold $900 worth of parts and oil to the nearby mechanic, and she sold you $1,000 worth of inputs you needed to keep your business running. That’s a $100 deficit. Meanwhile, you buy $100 worth of goods from the faraway convenience store — and sell them nothing. Same deficit. Completely different relationship. Right?

Now, let’s rename the characters. You are the United States. Closest-car-mechanic is Mexico. Faraway-convenience-store is China.

One way to assess trade relationships more intelligently is to look at trade deficits relative to exports. By 2024, the U.S.-China relationship showed a deep structural imbalance, with a deficit equivalent to -205.8% of U.S. exports to China. With Mexico, the figure is far more balanced, around -51.4% over time. In plain English: the U.S. trade deficit with Mexico rises and falls roughly in line with U.S. exports to Mexico. With China, the U.S. mainly imports finished goods and sells comparatively little in return.

There’s another way to look at this. We can adjust the traditional trade balance by subtracting the exports to the U.S. that are produced by U.S. companies operating in Mexico.

In 2023, Mexico exported about $560 billion to the United States. Roughly $220 billion came from manufacturing and export services. Of that amount, 80% originated from U.S.-owned firms, about $176 billion. That same year, the U.S. recorded a $152 billion trade deficit with Mexico. By this logic, you could argue that the “real” balance wasn’t negative at all. Interesting, right? That said, this approach is still imperfect, since those exports also contain non-U.S. components.

Which brings us to the last mile of the text: components and value added.

To truly understand trade relationships, we must measure them in terms of value-added content. Back to Closest-car-mechanic. If she sells me an engine for $100, that’s the headline number. But what if 75% of that engine’s components were initially produced by me and sold to her? Suddenly, the deficit looks very different — because we’re co-producing the engine.

This is precisely what happens between the United States and Mexico. Mexico has the highest share of U.S. components embedded in its exports — roughly 10 times more American content than Chinese exports and nearly three times the global average. And it works the other way too: among all foreign value added in U.S. exports, Mexico ranks first, accounting for about 13%.

And, keeping the car analogy, the auto industry works exactly like that: the U.S.-Mexico automotive trade deficit appears large in gross terms ($108 billion), yet, when measured in value-added terms, it reduces by 82% ($19.8 billion)!

I promised short essays, and I’ll keep my word. So let’s end with some cool and sexy takeaways. Not all trade deficits are created equal — and we shouldn’t treat them as if they were.

The U.S.-Mexico economic relationship has evolved from a traditional buyer–seller dynamic into a deeply integrated co-production system.

That system is like a scrambled egg. You can’t separate the yolk from the whites and put them back in the shell. The only sensible thing to do is keep scrambling — maybe add some bacon, cheese and more eggs — and make it even better. Cheers!

Pedro Casas Alatriste is the Executive Vice President and CEO of the American Chamber of Commerce of Mexico (AmCham). Previously, he has been the Director of Research and Public Policy at the US-Mexico Foundation in Washington, D.C. and the Coordinator of International Affairs at the Business Coordinating Council (CCE). He has also served as a consultant to the Inter-American Development Bank.

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That portrayal closely mirrors the rhetoric of U.S. President Donald Trump. Across speeches, social media posts, and televised interviews, Mexico is often cast as a country willfully flooding the United States with drugs and failing to control migration. In a Fox News interview on Saturday, January 3, following recent events in Venezuela, Trump even hinted at the possibility of conflict much closer to home.

“Your vice president, JD Vance, said that the message is pretty clear: that drug trafficking must stop. So was this operation a message that you’re sending to Mexico, to Claudia Sheinbaum, the president there?” Fox’s Griff Jenkins asked.

“Well, it wasn’t meant to be, we’re very friendly with her, she’s a good woman,” Trump began. “But the cartels are running Mexico. She’s not running Mexico. We could be politically correct and be nice and say, ‘Oh, yes, she is.’ No, no. She’s very, you know, she’s very frightened of the cartels. They’re running Mexico. And I’ve asked her numerous times, ‘Would you like us to take out the cartels?’ Something is gonna have to be done with Mexico.”

Trump’s language frames Mexico less as a neighbour or partner and more as a looming threat. For those who’ve never travelled south of the border, this one-dimensional depiction can easily become the dominant lens through which the country is viewed.

The reality, however, is far more intricate.

Misrepresented blame

One of Trump’s most frequent claims is that Mexico is deliberately flooding the United States with fentanyl, leading to hundreds of thousands of deaths. While the CDC confirms the opioid crisis has indeed resulted in more than 100,000 overdose fatalities annually in the U.S., attributing this tragedy solely to Mexico oversimplifies a deeply complex issue.

Fentanyl does cross into the U.S. from Mexico, but through criminal networks, not as a matter of government policy or national strategy. Drugs are most often smuggled through legal ports of entry, frequently by U.S. citizens, using increasingly sophisticated methods. Mexican authorities actively work to disrupt these networks, often at considerable risk and cost.

Trump’s framing isn’t only misleading, it shifts responsibility away from U.S. demand, domestic trafficking networks, and the public-health dimensions of addiction. Drug trafficking is a shared challenge, and rhetoric that ignores this reality strains cooperation on both sides of the border.

The reality of enforcement

Trump has argued that Mexico does little to control migration and that declines in border crossings are solely the result of his policies. This narrative omits key facts.

Mexico enforces its immigration laws rigorously, often under extraordinary strain. Data from the Migration Policy Institute documents checkpoints, detention centres, deportations, and patrols along Mexico’s northern border, many operating with limited resources and constant scrutiny.

Reducing this reality to slogans about walls and tariffs overlooks the complexity on the ground. Mexico isn’t passively allowing migration, it’s managing a regional humanitarian crisis in real time, while absorbing pressures that never reach U.S. headlines. This effort, while imperfect, reflects the work of countless officials and citizens navigating difficult circumstances.

Exaggerating the threat

Trump often describes Mexico as a cartel-run state where danger is omnipresent. While violence certainly exists, it’s uneven and highly localized. Data from Mexico’s National Institute of Statistics and Geography shows that large areas of the country, including Mérida, Querétaro, Oaxaca, and most neighbourhoods of Mexico City, remain notably safe.

In these places, daily life looks much as it does elsewhere. People walk through parks, shop in markets, and sit in cafés without the constant fear implied by Trump’s portrayal.

Distorted narrative

Trump has repeatedly claimed that Mexico doesn’t cooperate enough with the U.S. in terms of extraditions. This assertion is demonstrably false and is supported by U.S. Department of Justice data that highlights Mexico’s long history of extraditing criminals to the U.S., often under significant political pressure and real danger to the officials involved.

Cooperation between the two countries extends well beyond law enforcement. Extraditions involve complex legal and diplomatic considerations and mischaracterising this history undermines trust while fueling unnecessary suspicion.

An oversimplification

Throughout 2025, Trump maintained that walls and tariffs could single-handedly resolve border issues. In reality, migration and trade are shaped by deep-rooted forces including inequality, violence, labour demand, and global supply chains. Treating these challenges as problems with simple, mechanical solutions obscures their true nature.

Trade deficits, which Trump frequently cites as evidence that Mexico is exploiting the U.S., are similarly complex. They reflect consumer behaviour and market dynamics, not wrongdoing. Tariffs, moreover, are paid by U.S. importers, costs that ultimately land on American businesses and consumers, not on Mexico.

Inflated numbers

Trump routinely inflates figures related to illegal crossings, drug deaths, and cartel activity. These exaggerations fuel anxiety and suspicion among audiences watching from afar. For those of us living in Mexico, they more often provoke frustration and disbelief.

Day to day Mexico is vibrant, functional, and resilient. The lesson isn’t to dismiss data, but to approach dramatic claims with scepticism and to balance statistics with lived experience.

Residents here often navigate between two competing narratives: the Mexico we know, and the Mexico portrayed in political theatre. That distinction shapes how we live, where we settle, and how we explain our lives to friends and family back home. It reminds us that Mexico isn’t a monolith defined by danger, but a country of nuance, contradiction, and endurance.

Beyond fear driven narratives

Trump’s narrative about Mexico reflects a broader pattern of exaggeration and blame-shifting. For those relocating to or already living in Mexico, the takeaway is simple: the country is richer, more vibrant, and more complex than any Trump headline or speech suggests. Bureaucracy can be frustrating, crime exists, and governance can feel bewildering at times, but daily life goes on. Families gather, businesses grow, markets buzz, and communities support one another.

Rhetoric has consequences. Words spoken from a political stage shape perceptions, influence policy, and colour everyday interactions. Statements like “Something is gonna have to happen to Mexico” carry weight well beyond the moment they’re uttered.

Charlotte Smith is a writer and journalist based in Mexico. Her work focuses on travel, politics, and community. 

The post Opinion: Why Donald Trump is wrong about Mexico appeared first on Mexico News Daily

What began as a small drug boat getting blown up on Sept. 1 off the Caribbean coast of Venezuela had quickly turned into a steady flow of attacks in both the Caribbean and Pacific. The most recent account is that there have been 36 vessels attacked, with at least 115 people killed. In addition to the boat attacks, there has of course been the U.S. military buildup in the area around Venezuela. Never in recent history have so many U.S. soldiers and military assets been stationed in the region.

Throughout this period, the rhetoric on Mexico has been relatively consistent. President Sheinbaum has continued to emphasize the sovereignty of Mexico and insist that U.S. troops are not acceptable in the country. She recently even went so far as to say that, “The last time the United States came to Mexico with an intervention, they took half of the territory.” President Trump has been consistent in his rhetoric towards Mexico, on more than one occasion insisting that “Mexico is run by the cartels,” while at the same time praising the Sheinbaum administration for the collaboration with the U.S. against the cartels.

Sheinbaum in fact has taken some significant actions against the cartels, and has demonstrated a step change in action compared to her predecessor. AMLO’s “hugs, not bullets” strategy against the cartels clearly was ineffective and insincere. No one can forget AMLO briefly meeting Chapo’s mother in Sinaloa.

But today, everything changed. Sheinbaum’s immediate reaction to the Venezuelan attack was to issue a statement “condemning the military intervention in Venezuela” and citing Article 2, paragraph 4 of the United Nations Charter that reads: “All Members shall refrain in their international relations from the threat or use of force against the territorial integrity or political independence of any state, or in any other manner inconsistent with the Purposes of the United Nations.” That is a logical and valid reaction, especially given her consistent references to Mexico’s sovereignty.

That being said, the United Nations stood by and did little over the past several decades as first Chávez and then Maduro ruled Venezuela with an iron fist. Corruption was rampant, elections were rigged, and millions of Venezuelans were forced to flee the country in search of a better life. The United Nations and most nations of the world stood silent as millions of Venezuelans were forced to walk through the Darien Gap, as countless stories were told of many of them being robbed, raped or killed in the journey. The millions that ultimately made it to the U.S. border were treated as asylum seekers and welcomed into the country. This led to many communities across the nation having their schools, hospitals, and support organizations overwhelmed as they attempted to support the massive wave of new immigrants into the country. This of course was another key theme of the recent U.S. elections.

El Artículo 2, párrafo 4 de la Carta de las Naciones Unidas dice textualmente:

“Los Miembros de la Organización, en sus relaciones internacionales, se abstendrán de recurrir a la amenaza o al uso de la fuerza contra la integridad territorial o la independencia política de…

— Claudia Sheinbaum Pardo (@Claudiashein) January 3, 2026

So the Trump administration finally took action. And in taking action, also said that Mexico, along with Cuba and Colombia could be next. He also once again reiterated to Fox News that Mexico is run by the drug cartels and added that, “Something’s going to have to be done with Mexico.” Is this a threat that should be taken seriously? And if so, what should Mexico do?

Here is my personal take. Not only President Trump, but also Secretary Rubio, U.S. Ambassador to Mexico Ron Johnson and even Secretary Noem have recently commented on the cooperation and collaboration of the Sheinbaum administration in the war on drugs. Clearly this is a completely different tone than what was being said about Venezuela, Cuba and Colombia. The Trump administration has ratcheted up the pressure on Mexico to take action on the cartels, and Mexico has many examples of improved action and results.

I believe that today’s Venezuelan actions will serve as an even larger “stick” to get Mexico to do more, much faster. I also believe that Trump will also use the “carrot” of the upcoming USMCA trade agreement renewal to exert even more pressure on Mexico to quickly produce results. It cannot be forgotten that the U.S. is Mexico’s largest customer, and Mexico is the U.S.’s largest customer. That means alot and obviously isn’t the case with Venezuela, Cuba and Colombia.

What do these results ultimately look like? Look for more cartel leader arrests, more drug seizures, more collaboration on the flow of money, weapons and drugs. And look for the use of drone strikes on Mexican fentanyl labs. This was my “wildcard” prediction for Mexico for 2026 that I think just became a lot more likely today. The drone strikes might be ultimately conducted by Mexico (with behind the scenes support from the U.S. military), but I do believe that they will begin happening sooner rather than later.

I believe that these actions by Mexico will happen, and as a result will prevent any direct U.S. actions or intervention in Mexico. The real question to begin to think about, both in Venezuela and if increased actions take place in Mexico, is what will happen next. In other words, what will the cartels do next? Where will they go? How will they respond? History teaches us that it is not the success of the attack, but rather the lack of a plan after the attack, that often ultimately determines future success. Let’s hope that the U.S. has a comprehensive, well-thought-out plan to address that.

Travis Bembenek is the CEO of Mexico News Daily and has been living, working or playing in Mexico for nearly 30 years.

The post In the wake of Venezuela, is Mexico next? A perspective from our CEO appeared first on Mexico News Daily

The question, of course, is what that “something” means. A mobilization like the one he boasted about in Venezuela? A military strike disguised as humanitarian aid? In geopolitics, answers are never simple, but several factors suggest such a U.S.-led operation would be not only ineffective but dangerously misguided.

Balkanization

Cartels function everywhere in Mexico, but their activities vary. Along the borders, they once specialized in human smuggling — a business reshaped, though not erased, by Trump’s immigration crackdowns. In Puebla, they steal. In Mexico City, they extort. Their operations reach deep into daily life, adapting like a shadow economy that feeds on absence and fear.

The popular image of gleaming narcos with gold chains and pet tigers misses the truth. These are not caricatures; they are corporations. They run logistics networks that operate with the efficiency of global retailers. The difference is that Walmart files taxes; cartels file body counts.

And when you remove cartel leaders, you don’t end the organization. The fall of El Chapo divided the Sinaloa cartel into rival factions, as his sons, Los Chapitos, battled his old partner Ismael “El Mayo” Zambada for control. Violence surged. New cells formed. “Kingpin strategy” is not a decapitation, but instead a fragmentation of the problem into even harder to remove pieces. Each head cut off becomes a new command structure, smaller, quicker, and often more violent.

Something is already being done

Let’s not pretend Mexico and the U.S. operate in isolation. DEA agents and American intelligence personnel have worked in Mexico for decades. Bilateral operations against cartels are routine; intelligence is shared, coordinated, and, often, successful.

If what Trump imagines is Marines parading through Mexican streets, that’s not cooperation. It’s an invasion. President Sheinbaum is right: that would be a direct violation of Mexican sovereignty. Mexico is not a failed state begging for rescue; it’s a struggling democracy managing one of the harshest criminal ecosystems on the planet, one fed by its neighbour, often with limited tools and too little support.

Just look at Security Secretary Omar García Harfuch’s record — his operations dismantled dozens of criminal cells and captured high-ranking traffickers. Progress exists. What doesn’t is patience.

As long as demand exists

Believing that killing cartel leaders will end drug addiction is delusional. The only way to deal with the problem seriously is to treat addiction as the public health crisis it is. Switzerland learned that decades ago. Instead of declaring war on heroin in the 1980s, the Swiss government created supervised heroin and methadone programs so addicts could transition safely toward recovery. Infection rates dropped, overdose deaths plummeted, and drug-related crime fell. The state, not the streets, took control.

Mexico has destroyed countless synthetic drug labs, but the results are temporary at best. When one operation disappears, another one appears elsewhere. As long as the U.S. appetite for narcotics endures, Mexico’s cartels will adapt, relocate, and rebuild.

In essence, legalization removes control from the hands of the criminal underworld and places it squarely with institutions. It doesn’t celebrate drug use, it sets boundaries around it—with rules about who can sell, who can buy, and where consumption can happen. Legalization doesn’t mean permissiveness; it means precision.

“Something has to be done”

On this point, Trump isn’t alone. Mexicans are equally desperate. We are tired of the headlines, the funerals and the fear. Our parents remember another Mexico, one where you could travel at night without locking your doors. My generation remembers the warning signs: don’t drive certain highways, don’t look at strangers too long, don’t ask who lives next door.

Of course, we want the violence to stop. But we also know what happens when foreign troops step in under the pretext of restoration. They rarely leave when the fighting’s over. Once a Marine garrison appears in Chiapas or Sinaloa, sovereignty becomes a negotiation, not a right.

Intervention promises quick relief but often ends in permanent instability. The “war on terror” taught us that lesson painfully well.

A final thought

Drugs are already here. The question is who decides their terms — cartels or governments. Prohibition has failed for half a century; legalization, for all its risks, at least offers the chance to manage the damage instead of multiplying it.

Something does have to be done about Mexico — about the violence, about the fear, about the hypocrisy on both sides of the border. But the solution won’t come from cruise missiles or foreign boots on Mexican soil. It will come when both countries can admit that the drug war, as we’ve waged it, has been an act of self-deception.

As Mexicans, we’ve lived with this crisis for far too long and perhaps we’ve also been shortsighted about how to confront it. We’ve demanded action, yet often repeated the same failed formulas. Maybe the real challenge is daring to do something different — and finally breaking free from the cycle that keeps us trapped between fear and denial.

Maria Meléndez writes for Mexico News Daily in Mexico City.

The post Opinion: ‘Something’s going to have to be done with Mexico’ but it must not be by Trump appeared first on Mexico News Daily

1. President Sheinbaum will continue to have a 70%-plus approval rating. Nearly every president sees their approval rating consistently decline during their term; I think Sheinbaum will be an exception as she continues to guide the country through difficult domestic and international issues.

2. Sheinbaum and her team will be successful in renewing the USMCA agreement with the U.S. and Canada in a way that maintains and even strengthens the relationship between the countries. There will be drama, there will be fireworks, but ultimately, the deal will get done.

3. Sheinbaum and her team will continue to make progress against the cartels and on violence in the country. After very limited results for six years under AMLO, a step change in actions and results began in 2025. We will see it continue in 2026. The country and the world will take notice.

4. The Mexican peso will finally start to follow the laws of economics and weaken against the USD. I predict that the peso will devalue at least 10% and finish above 20 pesos to the USD. Why? Slower economic growth, lower interest rates and higher inflation rates will all be contributors.

5. GDP growth, which is predicted to be between 1 and 1.5%, will surprise to the upside. I think 2% is possible, fueled by World Cup tourism spending, government infrastructure spending, help from U.S. growth and foreign direct investment.

How accurate were my 2025 predictions for Mexico? A perspective from our CEO

6. Mexico will make it out of the first round of the World Cup, but lose in the round of 16. Sorry Mexican fans, but I have seen it happen too many times before. That being said, Mexico will be a great host to the games and the world will take notice.

7. Tourism numbers will again hit a record, fueled by World Cup tourism and increased interest and excitement in the country’s many cities and attractions. Becoming a top 5 destination for tourists globally is in sight.

8. Continued tensions globally against China will make Mexico an increasingly attractive location for businesses to invest. As the U.S. receives more investment, Mexico will benefit as well. I think foreign direct investment will again hit a record in 2026.

9. AMLO’s legacy projects will begin to show some increased momentum. The Felipe Ángeles airport in Mexico City, the Dos Bocas refinery, the Interoceanic freight train, the Maya Train and the Tulum airport will all look like less “white elephant” projects than they did in 2025. They will all remain very far from profitability and expected capacity, but the momentum will be positive.

10. Sheinbaum will begin to make a positive dent in the energy industry. After largely ignoring the oil production (Pemex) and energy production (CFE) industries in 2025, she will begin to pressure them to reform and allow increased private investment. It will just be the start, but there will be a clear change in tone.

I will also add one “wild card” prediction. I think there is a strong possibility that there will be at least one drone strike against a fentanyl lab in Mexico. I don’t know if it will be done directly by the Trump administration, in coordination with the Sheinbaum administration, or solely by Mexico — but I think it will happen as the pressure is ratcheted up against the cartels.

What do you think? Do you agree with my predictions? Am I missing something? Please add your thoughts in the comments.

Travis Bembenek is the CEO of Mexico News Daily and has been living, working or playing in Mexico for nearly 30 years.

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