Private-sector economists surveyed by the Bank of Mexico and several Wall Street analysts began 2025 expecting the peso to weaken toward 21 per dollar. Instead, it traded around 16.97 per dollar Friday morning, nearly 20% stronger against the dollar than it was in January 2025.

That rally may look like a vote of confidence in the government and the economy. It is not such a simple verdict. The Bank of Mexico raised its 2026 growth forecast this week from 1.1% to 1.5% after a strong second quarter, but the new estimate still points to a slow-growing economy.

The central bank has noted that 2026 would be the third consecutive year in which growth remained below Mexico’s already modest pre-pandemic average of 2.1%.

After population growth, a 1.5% expansion would produce only a small increase in output per person. It would leave little additional economic activity to raise living standards, create better jobs or support stronger incomes. If the exchange rate were a reliable scorecard for economic performance, a currency rally of this size would normally be accompanied by vigorous growth and broad gains in productive investment. Mexico is not experiencing either one.

What Is Driving the Rally

The largest external force behind the peso has been the weaker US dollar. The dollar lost more than 10% against a basket of major currencies in 2025, lifting many emerging-market currencies without requiring an economic boom at home. Graham Stock, senior sovereign strategist at RBC BlueBay Asset Management, told Reuters that the peso was not unusually strong compared with its emerging-market peers because the dollar had weakened broadly.

Mexico has added another attraction in the form of interest rates well above those in the United States. The Bank of Mexico held its benchmark rate at 6.5% in August, while the Federal Reserve’s target range stood at 3.5% to 3.75%. That gap allows investors to borrow or raise money in lower-yielding currencies and buy Mexican bonds and other peso assets that pay more.

The strategy, known as the carry trade, works while the peso remains stable or continues appreciating. Investors collect the higher yield and may receive an additional gain when converting pesos back into dollars. Mexico is particularly attractive for this trading because the peso is widely traded and its financial markets are easy for international investors to enter.

Some of the rally does reflect favorable domestic conditions. Alejo Czerwonko, chief investment officer for emerging markets at UBS Global Wealth Management, told Reuters that the peso’s gains against currencies including the Swiss franc showed that local factors were also at work. He cited lower trade-risk premiums, political stability and solid macroeconomic conditions.

Mexico’s manufacturing base has also gained from the global artificial-intelligence investment boom. S&P Global Market Intelligence estimated that Mexican computer-server exports reached US$82.9 billion during the first half of 2026, putting servers on course to overtake automobiles and auto parts as the country’s largest export category this year.

That is a promising industrial shift, but the headline value requires perspective. Mexico imported US$28.4 billion in computer servers from Taiwan during the same period, showing that imported components remain central to the trade. High export values do not automatically translate into comparable gains in domestic value added, Mexican suppliers or employment.

The broader economy remains mixed. Gross domestic product grew 1.4% in the second quarter after contracting 0.3% in the first, according to INEGI. The rebound was welcome and prompted the Bank of Mexico’s forecast increase, but one strong quarter does not turn Mexico into a high-growth economy. The peso is displaying more strength than many businesses and households are experiencing.

Exporters and Families Pay

A stronger peso does provide real benefits. Imported machinery, fuel, food and other dollar-priced goods can become cheaper, inflationary pressure may ease and dollar-denominated debt costs less when measured in pesos. Consumers also receive more purchasing power when buying abroad, although businesses do not necessarily pass the full currency savings to their customers.

Exporters face the other side of the bargain. More than 80% of Mexican exports go to the United States, and many producers earn dollars while paying wages, electricity, rent and taxes in pesos. When each dollar buys fewer pesos, those companies must accept lower margins, raise their dollar prices, reduce costs or protect themselves through financial contracts. None of those choices is painless for an economy already struggling to grow.

The arithmetic is straightforward. An exporter receiving US$1,000 obtained MX$20,000 when the exchange rate was 20 pesos per dollar. At 17 pesos per dollar, the same sale produces MX$17,000. The company loses 15% of its peso revenue even though it sells exactly the same amount.

The pressure has appeared in corporate reports. José Cuervo producer Becle, Grupo Bimbo, Grupo Carso, Grupo Industrial Saltillo and Mexican stock exchange operator BMV have all reported damage from currency conversion or peso appreciation. Bimbo’s second-quarter sales fell 2.2% when reported in pesos, even as sales rose 4.5% after currency effects and other adjustments.

Valeria Moy, director of the Mexican Institute for Competitiveness, told Reuters that the appreciation had become a delicate issue for companies concentrated in the US market. Exports have continued to grow, but rising shipment values do not eliminate the squeeze on the pesos that exporters receive after conversion.

Families receiving remittances face the same calculation. A relative sending US$300 from the United States provided MX$6,000 at an exchange rate of 20 pesos per dollar. At 17, the same transfer provides only MX$5,100, a loss of MX$900 in local purchasing power before fees and inflation are considered.

Cheaper imports do not automatically offset that loss. Exchange-rate savings may not be passed through completely, while major household expenses including rent, local food, transportation and domestic services are priced inside Mexico. Currency stability is valuable, but the benefits and costs of appreciation are distributed unevenly.

A Rally That Could Turn Quickly

The central concern is not that the peso lacks support. It is that part of the recent demand may be coming from short-term traders rather than pension funds, insurers and other investors prepared to remain through difficult periods.

Marco Oviedo, economist and senior Latin America strategist at XP Investments, told Reuters that many long-term investors withdrew after Mexico’s 2024 election and have not fully returned. He described many recent buyers as “fast money.”

A Reuters analysis of Commodity Futures Trading Commission data found that the four-week average of speculative bets favoring the peso had moved close to its highest level since early 2023. Crowded trades can continue for months, but they become dangerous when investors react to the same signal and try to exit at once. Lower Mexican interest rates, a stronger dollar or rising political risk could reverse the flow quickly.

The clearest threat is a deterioration in North American trade relations. On July 1, the Trump administration declined to extend the United States-Mexico-Canada Agreement for another 16-year term. The agreement remains in force, but it will now face annual reviews, leaving businesses with less certainty about tariffs, investment rules and access to the US market.

Mexico should value a stable currency and the fact that it is not reliving the financial crises of the past. It should not mistake appreciation for proof of successful economic management. A peso that rises while growth remains weak can restrain inflation and lower import costs, but it can also compress exporters’ margins, reduce the peso value of remittances and become vulnerable when speculative capital changes direction.

The real tests are whether productive investment is increasing, whether good jobs are being created and whether ordinary families are gaining purchasing power. On those measures, the evidence is far less celebratory than the exchange-rate chart. The super peso is real, but it is not a substitute for economic growth.

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For more than a century, Mexico has looked at the narrow waist of its southern territory and seen economic promise. The rail route between Salina Cruz on the Pacific and Coatzacoalcos on the Gulf of Mexico runs roughly 190 miles, offering a natural place to move goods between the two coasts. Geography made the idea tempting, but history has shown how difficult it is to turn that advantage into lasting growth.

The country has now rebuilt the rail line, modernized the ports and begun moving freight. That is an important achievement, but it completes only the physical part of the project. The harder question is whether the corridor can attract enough business to change the economy around it.

The government has invested at least $4 billion in the Interoceanic Corridor of the Isthmus of Tehuantepec. The network is intended to move international cargo while bringing factories and jobs to a southern region that has long lagged behind northern and central Mexico. Freight service has begun, but the private investment needed to make the corridor an economic engine remains at an early stage.

The project should not be judged mainly by whether it can ease pressure on the Panama Canal. Its success will depend on whether the government can provide reliable electricity, natural gas, roads, water and legal certainty, then persuade companies to build plants far from Mexico’s established manufacturing centers. The trains can carry the cargo, but first the region needs many more businesses producing goods worth carrying.

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Clockwise from upper left are BlackRock Chairman and CEO Larry Fink, JPMorgan Chase Chairman and CEO Jamie Dimon, Banco Santander Executive Chair Ana Botín. and Goldman Sachs President John Waldron.

Claudia Sheinbaum has spent much of her political career challenging Mexico’s old economic establishment. Yet as president, she has repeatedly opened the doors of the National Palace to some of the most powerful figures in global finance.

Her recent meeting with Goldman Sachs President and Chief Operating Officer John Waldron is part of a pattern that now includes JPMorgan Chase, BlackRock, Santander, Blackstone and other major financial institutions and investment firms.

In a social media message following the meeting, Sheinbaum said they discussed “the favorable perception of our country in international markets” and the investment opportunities offered by Plan México.

The outreach is more than public relations. Sheinbaum is trying to persuade business leaders that a government led by the left-wing Morena party can provide a dependable place for investment while asking those companies to support national goals.

It is a practical recognition that government cannot build the factories, power plants, data centers and transportation systems she wants without private money and business experience.

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Mexico appears to have everything needed to benefit from companies moving production closer to the United States. It shares a 2,000-mile border with the world’s largest consumer market, has a deep manufacturing base and belongs to a three-country trade agreement.

Yet the expected wave of new factories has been slower to arrive than promised. The first review of the United States-Mexico-Canada Agreement has shown why.

The United States declined to renew the agreement for another 16 years during the formal review on July 1. The United States-Mexico-Canada Agreement remains in force, and negotiations continue, but its future is unsettled. Mexico still has its best manufacturing opportunity in years. Making the most of it will require more than a favorable location and promises of investment still waiting to arrive.

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President Donald Trump’s latest dismissal of the United States-Mexico-Canada Agreement should not have shocked Mexico. His words were unusually blunt, but the message was familiar.

Trump has criticized trade agreements for years, including the one he negotiated during his first term. His latest remarks did not represent a sudden change in position. They did, however, reinforce the uncertainty created on July 1, when his administration declined to approve a 16-year extension of USMCA.

Asked on July 28 whether he wanted to update the agreement, Trump told Fox News Channel’s Fox & Friends that he would rather have the United States operate independently. “Mexico and Canada need us. We don’t need them,” he said. “The deal is important for them. It’s not important for us.”

USMCA remains in force until 2036, and the three countries can extend it at any point before then. Without an extension, they must return for annual reviews. What was designed as a regular checkup could instead become a decade of repeated negotiations.

That would hurt Mexico even if the agreement never formally expires. Companies planning a factory or production line need to know which tariffs and content rules will apply several years from now. Annual reviews give Washington repeated opportunities to demand concessions or threaten tariffs outside the agreement.

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For companies deciding whether to build a factory, expand a supply chain or hire in Mexico, their greatest threat may not be a tariff. It may be the possibility that North American trade rules could be questioned every year.

Mexico has moved well ahead of Canada in negotiations with the United States, giving President Claudia Sheinbaum an opportunity to secure better terms and greater certainty for investors. Yet that head start carries its own danger. Concessions accepted by Mexico could become the model Washington later presents to Canada, while a separate U.S.-Canada agreement could eventually be used to pressure Mexico.

The third round of U.S.-Mexico talks produced progress but exposed a major disagreement over automobiles. A fourth round will take place in Washington in early September, and the hardest disputes may continue into 2027. An early deal will matter only if it restores confidence in the three-country system supporting much of Mexico’s manufacturing economy.

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Editor’s Note: I hesitated before publishing this story because I love Mexico and have chosen to make my home here. Stories about cartel violence can leave the false impression that the entire country is unsafe. That is not what this story argues. Security conditions vary greatly, and the dangers confronting Mexican businesses and communities are different from those faced by most visitors. But loving a country does not mean looking away from what harms it. Organized crime burdens the economy through extortion, cargo theft, security expenses and lost investment. This story examines the price paid by Mexicans who work, create jobs and build honest businesses. It is not an argument against visiting Mexico. It is an argument for confronting one of the forces preventing this remarkable country from reaching its full potential.

Organized crime does not appear in Mexico’s tax code, but thousands of businesses pay it anyway. The payment may take the form of an extortion demand, stolen cargo, private guards, higher insurance or a factory that never gets built. Unlike an ordinary tax, it finances no roads, schools or public services. It buys only the possibility of being left alone.

The recent massacre of 10 men in Zacatecas showed the human cost behind that economic burden. The victims included business owners, local officials, a livestock leader and men connected to construction, mining, transportation and entertainment. Five bodies were left hanging from a bridge, a display intended to frighten far more people than those who were killed.

Authorities have not established what connected the victims or why they were targeted. The state prosecutor’s office is investigating possible extortion and collusion involving public servants, while a video attributed to a Sinaloa Cartel faction claimed responsibility. The authenticity of the video and the group’s account have not been conclusively established.

Cristian Paul Camacho Osnaya, the Zacatecas state prosecutor, said in comments reported by El País that authorities had received no complaints when the men were abducted. “In none of the cases did this authority have a complaint or report,” Camacho said in a quotation translated from Spanish.

The silence before the bodies were found may be as important as the brutality that followed. When victims believe reporting a kidnapping or extortion demand could bring retaliation, criminal organizations gain something more valuable than money. They gain the power to make an entire community govern its behavior around them.

The Cost Mexico Can Count

No government agency can isolate the exact amount that cartels cost the Mexican economy. Organized crime overlaps with homicide, robbery, corruption, drug trafficking, cargo theft, fuel theft and ordinary street crime, while much of the damage is never reported. The available estimates therefore measure different parts of the problem rather than one final total.

The broadest calculation comes from the Mexico Peace Index 2026, produced by the Institute for Economics and Peace. It estimated that violence had an economic impact of 4 trillion pesos in 2025, approximately US$220 billion and around 11 percent of Mexico’s gross domestic product. The report identified criminal groups as the main force behind Mexico’s extreme violence.

The figure should not be treated as money simply removed from the economy. The model combines direct losses, long-term damage and the economic opportunities sacrificed when public and private money is spent containing violence instead of producing something useful.

These costs are not distributed evenly. Many Mexican businesses operate normally, while companies in particular regions and industries face much greater exposure to extortion, theft and criminal control.”

INEGI provides a narrower measure. Its latest national business victimization survey estimated that crime and insecurity cost Mexican businesses 124.3 billion pesos in 2023, equal to 0.51 percent of GDP. Companies spent 67.2 billion pesos of that amount on protection.

Even that estimate leaves out some of the most damaging consequences. INEGI said it did not include canceled investments, shorter operating hours or reductions in production and sales. Those missing costs are precisely where organized crime can do its greatest long-term harm.

Households carried a separate burden. INEGI estimated that crime and insecurity cost Mexican households 269.6 billion pesos in 2024, equal to 1.07 percent of GDP. That included direct losses, health costs and money spent on security measures.

Extortion shows why official case totals reveal only a fraction of the problem. INEGI estimated that businesses suffered 747,000 extortion attempts in 2023. About 113,000 occurred in person, at a business or through a direct demand for protection money, and victims surrendered what was demanded in 67 percent of those cases.

At the same time, 90.3 percent of all crimes against businesses were either not reported or did not produce a formal investigation. México Evalúa found that Zacatecas had nearly 1,500 extortions for every 10,000 businesses, placing it among the states where the problem was most severe. In that setting, the killings of employers and public officials send a message through every local shop, farm and construction company.

The Cost That Never Reaches a Police Report

The money handed to criminals is only the first loss. A business paying protection money may raise prices, reduce wages, cancel new equipment or decide that another location is not worth the risk. A family may move, taking its skills, savings and purchasing power somewhere else.

Research suggests that competition among criminal groups is particularly damaging. Ana Carolina Garriga and Brian Phillips studied Mexican states between 2000 and 2018 and found that every additional criminal organization operating in a state was associated with roughly 4 percent to 8 percent less new foreign investment the following year.

“Higher numbers of criminal groups are associated with lower levels of new FDI,” Garriga and Phillips wrote in the Journal of Conflict Resolution. Their findings did not show the same relationship for general crime or homicide rates. What appeared to matter was the presence of competing organizations fighting for territory and turning toward extortion, kidnapping and robbery.

That distinction helps explain why a state can continue exporting goods and attracting some large investments while local businesses are being hollowed out. Large companies can hire security, insure shipments and protect senior employees. Small Mexican businesses have fewer defenses, making them easier targets and more likely to close or remain small.

The result is an economy that may continue growing while never reaching its potential. Existing factories stay open, but suppliers decline to expand. Entrepreneurs avoid visible success because prosperity can attract criminal attention.

Where the Criminal Money Comes From

Cartel revenue is even harder to measure than cartel damage. A 2015 U.S. Treasury assessment said estimates of Mexican drug-trafficking income ranged from US$6 billion to US$39 billion annually. That range is old and far too broad to serve as a current total, but it demonstrates the uncertainty surrounding criminal finances.

The U.S. Treasury’s 2026 money-laundering assessment describes how the Sinaloa Cartel and Jalisco New Generation Cartel move proceeds through cash smuggling, front companies, trade transactions and professional laundering networks. It does not offer a reliable combined revenue figure because the money is divided among producers, transporters, distributors, corrupt officials and financial middlemen.

Drug smuggling remains enormously profitable, especially when compact synthetic drugs produced at relatively low cost are sold in the much wealthier U.S. market. But Mexico’s largest criminal organizations are no longer simply drug exporters. They also earn money from extortion, migrant smuggling, stolen fuel, illegal mining, cargo theft, counterfeit goods and control over parts of legitimate agriculture and transportation.

In a May 2025 statement, U.S. Treasury Secretary Scott Bessent called fuel theft and crude-oil smuggling “cash cows for CJNG’s narco-terrorist enterprise.” The underlying point was economic. Control over legal commodities can produce criminal revenue on a scale once associated mainly with narcotics.

Violence makes those businesses possible. Criminal groups cannot sue a customer who refuses to pay, ask a court to enforce a smuggling agreement or call the police when a rival takes their territory. Guns, kidnappings and public killings become their debt collectors, contract enforcers and advertising department.

Not every act of cartel violence is directly tied to a payment. Some attacks grow from political alliances, retaliation or internal struggles. Yet violence still demonstrates who controls a territory and what can happen to anyone who ignores the imposed rules.

The Tax With No Public Return

Criminal income and Mexico’s economic loss are not equal. A cartel may collect one peso in extortion while causing several pesos in canceled investment, lost work, higher transportation costs and public security spending. The fear surrounding the payment can be more expensive than the payment itself.

Some criminal money eventually enters the legal economy through real estate, construction, restaurants and other businesses. That does not make the country richer. It rewards coercion, pushes out legitimate competitors and directs capital toward laundering rather than productive investment.

The massacre in Zacatecas is especially damaging because many victims occupied positions that held local economies together. One ran a group of construction and concrete companies employing about 500 people. Others were connected to mining, fuel and water transportation, public works, livestock and entertainment. Their deaths removed experience and leadership while warning other employers that commercial success may carry a personal risk.

Reducing that burden requires more than arresting cartel leaders or celebrating a temporary decline in homicides. Businesses need police they can trust, prosecutors able to protect witnesses, financial investigations that follow criminal money and local governments that cannot be captured through bribery or intimidation. Otherwise, removing one powerful leader may simply produce several smaller groups that depend more heavily on extortion.

Mexico’s economic debate often focuses on tariffs, trade agreements, infrastructure and access to capital. All matter, but none can fully overcome a system in which criminals decide who may transport goods, open a business or remain alive.

Until that private system of taxation is broken, organized crime will continue collecting from the Mexican economy, and the country will continue paying far more than the cartels receive.

Barber’s Mexico Business Report is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber. Paid subscribers also receive The Rising Tide — two weekly newsletters for the price of one, at $8 per month.

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The case against Sinaloa Governor Rubén Rocha Moya is testing more than relations between Mexico and the United States. It is testing whether Mexico’s institutions can confront political corruption and provide the legal certainty businesses need to invest.

Federal prosecutors in New York have charged Rocha and nine other current and former Mexican officials with drug trafficking and related weapons offenses. The indictment accuses them of protecting the Sinaloa cartel in exchange for bribes and political support. Rocha and the other defendants have denied wrongdoing, and none of the allegations has been proved in court.

The U.S. Justice Department alleges that Rocha met with leaders of the Chapitos, the cartel faction run by sons of Joaquín “El Chapo” Guzmán, and promised to protect their operations. Prosecutors also claim the group helped Rocha win the 2021 election by intimidating opponents, stealing ballots and kidnapping rival candidates.

The allegations raise doubts about whether companies can trust local police, move goods securely and depend on government decisions free from criminal influence. Those risks matter in a country whose manufacturing growth and access to the American market depend on confidence in the institutions surrounding its factories and supply chains.

President Claudia Sheinbaum has refused to order Rocha’s arrest or support his extradition without evidence she considers sufficient. Mexico has every right to insist that Washington prove its case, but refusing the American demand is only half an answer. The larger test is whether Mexico’s own institutions are prepared to investigate the allegations and show investors that political power does not place anyone beyond the law.

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Mexico continues to attract major investment even as questions about the future of the United States-Mexico-Canada Agreement (USMCA) hang over North America’s business outlook.

Between May 1 and June 15, companies announced US$7.152 billion in new investments across manufacturing, logistics, infrastructure, energy, pharmaceuticals, aerospace and food production, reinforcing Mexico’s position as one of the continent’s leading industrial economies.

The announcements reached well beyond a handful of established manufacturing centers. New projects were spread across Nuevo León, the State of Mexico, Guanajuato, Querétaro, Coahuila, Veracruz, Hidalgo, Sonora, Aguascalientes and Mexico City, suggesting that confidence in Mexico’s industrial base remains broad despite continued uncertainty over regional trade policy.

The latest investment wave suggest that many companies still see Mexico as a competitive place to manufacture, expand supply chains and serve the North American market. That distinction helps explain why investment continues to flow even as trade negotiations remain unresolved.

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The debate over North American trade is no longer about whether the United States, Mexico and Canada should manufacture together. It is about where that manufacturing should take place. That distinction sits at the heart of the Trump administration’s decision not to renew the United States-Mexico-Canada Agreement.

The agreement itself remains in force, so North America is not facing an immediate trade crisis. The more significant change is that Washington has opened the door to rewriting the rules that have guided investment across the continent for years.

Companies deciding where to build factories, expand supply chains or hire workers are now looking beyond the headlines to a larger question. Is the United States trying to modernize the agreement, or is it trying to redirect the future of North American manufacturing toward American soil?

The answer matters as much in Monterrey's industrial parks as it does in Detroit's boardrooms. For Mexico, the issue is no longer simply preserving tariff-free access to the U.S. market. It is preserving the confidence that persuaded manufacturers from around the world to choose Mexico as a production base in the first place.

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Mexico has spent decades becoming one of the world’s leading manufacturing economies. Yet many of the chemicals, industrial inputs, and fertilizers that keep its factories running and its farms productive still come from abroad.

That dependence has become increasingly uncomfortable for policymakers as supply chain disruptions, geopolitical tensions, and trade disputes have exposed the risks of relying too heavily on foreign suppliers.

Through PEMEX, the government plans to invest MX$93 billion over the next five years to rebuild domestic fertilizer and petrochemical production, part of a broader effort to strengthen strategic industries and reduce import dependence. The question is whether the country can achieve those goals through a state oil company that remains under significant financial pressure.

In an era marked by supply chain disruptions, geopolitical tensions, and growing concerns about economic resilience, policymakers are placing greater emphasis on domestic production of products considered strategically important. Fertilizers and petrochemicals have become part of that effort.

“This reactivation gives us the opportunity to once again produce in our country, strengthening national industry and food security, reducing supply chain vulnerabilities and contributing to the creation of jobs,” PEMEX CEO Juan Carlos Carpio said at President Claudia Sheinbaum’s June 5 press conference.

The investment plan raises a question that extends well beyond fertilizers and petrochemicals. Can Mexico rebuild strategic industries through PEMEX at a time when the state oil company remains heavily indebted and continues to struggle financially?

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Mexico’s manufacturing sector continues attracting billions of dollars in new investment. Industrial park developers are planning another record year, companies are expanding production, and new facilities are rising across the country.

Yet as that growth continues, questions are once again emerging about the trade framework that helped make much of it possible. Speaking in Paris this week, President Donald Trump raised fresh doubts about the future of the U.S.-Mexico-Canada Agreement.

“I’m thinking about maybe we won’t be able to make a deal. I would rather not have the USMCA,” Trump told reporters. He later added that he would “rather have it terminated,” although he also suggested he could ultimately support a renewal.

Most observers do not expect the agreement to disappear. The mandatory review process built into the pact was designed to allow the three countries to evaluate its performance and make adjustments where necessary.

Even so, Trump’s comments arrive at a time when Mexico’s economy has become more dependent on integrated North American supply chains. The result is a growing contrast between political uncertainty and continued investment confidence.

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Mexico’s nearshoring boom was built on the simple promise that companies could invest billions of dollars in factories, warehouses, and supply chains while maintaining reliable access to the American market.

That assumption helped drive a wave of manufacturing investment across northern and central Mexico. President Trump’s latest comments have raised questions about how secure that promise really is.

Speaking in the Oval Office on Wednesday, Trump cast doubt on whether he would support renewing the United States-Mexico-Canada Agreement, the trade pact that governs commerce across North America.

“I don’t know that I’m going to renew it,” Trump told reporters. He also repeated his long-standing view that the United States has little need for imports from its neighbors, saying, “We don’t need anything that Canada has, we don’t need anything that Mexico has, but they need everything that we have.”

Trade negotiations often begin with tough rhetoric. What makes these comments significant is the timing. Mexican and U.S. officials are already engaged in discussions over the future of the agreement, and manufacturers throughout North America are making long-term investment decisions based on assumptions about what those negotiations will produce.

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For three decades, companies built factories, supplier networks, and production lines across North America based on the belief that economic integration would continue deepening across the continent. Now proposals emerging from Washington suggest that assumption may no longer hold.

The Trump administration is seeking major changes to automotive rules under the United States-Mexico-Canada Agreement. U.S. negotiators have proposed requiring that 50% of a vehicle’s value originate specifically from the United States in order to qualify for preferential treatment under the trade pact.

They are also reportedly seeking to raise the overall North American content requirement from the current 75% to 82%. The proposals may sound technical, but the stakes are significant.

The automotive industry is Mexico’s largest manufacturing sector and one of the country’s most important sources of exports, foreign investment, and industrial employment. If Washington succeeds in changing the rules governing where vehicles and parts must be sourced, manufacturers throughout North America may be forced to rethink future expansion plans, supplier relationships, and production strategies.

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Mexico’s water problems are often discussed through the familiar language of drought, shrinking reservoirs, and climate pressure. But it is also struggling to finance, maintain, and modernize the infrastructure needed to deliver, recycle, store, and manage water across an economy that continues expanding under the pressures of industrial growth and nearshoring.

That distinction matters because Mexico’s water challenges are no longer simply environmental. They are increasingly economic. Water availability is beginning to shape investment decisions, manufacturing strategy, infrastructure planning, and the long-term competitiveness of entire industrial regions. What once appeared to be a seasonal or regional issue is steadily becoming a structural constraint on growth itself.

Environmental depletion and degradation already cost Mexico an estimated 4.1% of GDP, while nearly half of the country’s economic activity takes place in areas facing severe drought conditions. At the same time, northern and central Mexico continue attracting manufacturing investment tied to the broader reorganization of North American supply chains.

Factories, logistics hubs, industrial parks, and expanding urban populations are all increasing demand on systems that, in many cases, were already struggling long before the current wave of industrial expansion arrived.

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For years, Mexico benefited from a reputation for relative fiscal discipline, with investors often viewing the country as more financially cautious than many other major emerging economies. That reputation is beginning to weaken, and much of the pressure now points back to the country’s heavily indebted state oil company, Petróleos Mexicanos, better known as Pemex.

Moody’s Ratings downgraded Mexico’s sovereign credit rating this week, citing weakening public finances, rising debt burdens, and the government’s continued financial support for Pemex. While the agency shifted its outlook to stable from negative, signaling it does not expect an immediate crisis, the downgrade still reflected growing concern over the country’s longer-term fiscal direction.

Pemex has increasingly become one of the central economic dilemmas facing President Claudia Sheinbaum’s administration. The heavily indebted state energy giant remains politically untouchable in many ways, tied deeply to Mexico’s modern nationalist identity and decades of state control over the oil industry. Yet financially and operationally, the company continues struggling under mounting pressure.

Moody’s warned that Mexico’s relatively narrow tax base limits the government’s ability to stabilize debt levels over the long term, especially if economic growth remains weak. The agency expects Mexico’s economy to remain subdued in the near future, with growth only gradually returning toward its longer-term trend of 2%.

The problem is becoming harder for investors to ignore because Pemex’s difficulties increasingly spill directly into the federal government’s finances. Last year alone, Mexico issued roughly $13.8 billion in debt to help support the company.

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Mexico’s nearshoring boom is colliding with a growing transportation crisis that is raising the cost of doing business across the country. Rising diesel prices, cargo theft, insurance costs, and mounting pressure on freight networks are beginning to reshape the economics behind Mexico’s manufacturing expansion.

The problem is no longer limited to trucking companies. It now reaches manufacturers, retailers, exporters, suppliers, and consumers throughout the supply chain.

Transportation groups representing trucking, rail, maritime, and air cargo operators report that logistics costs have climbed between 25% and 30% in recent years. Much of the increase is tied to diesel prices, which remain one of the largest expenses for freight carriers. Fuel volatility has made long-term planning more difficult for companies operating large fleets and high-volume shipping networks as profit margins continue tightening across the transportation sector.

At the same time, cargo theft has become one of the country’s most serious operational problems. Mexico now records roughly one cargo theft every 30 minutes, totaling more than 16,000 incidents annually.

Economic losses are estimated at more than US$7 billion a year, while insured cargo claims exceed US$405 million. Those figures reflect only the insured portion of the market, leaving a much larger universe of uninsured or underinsured losses outside the official totals.

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Olinia, a proposed government-backed electric vehicle project, has become a focal point for a broader question in Mexico’s auto industry: can the country move beyond its long-standing role as an assembly platform and build an industry with its own technological base?

Mexico remains one of the world’s top vehicle producers and is on track to approach 4.2 million units this year, while domestic sales reached 381,632 vehicles in the first quarter, the highest level on record. Yet those figures mask a shift that is already underway.

The model that has driven Mexico’s auto industry for decades is showing signs of strain. Production across the sector has softened, including a 2.7 percent decline in January 2026, while exports are growing but only modestly, rising about 1.4 percent at the start of the year.

More than 70 percent of vehicles still go to the United States, and many plants are operating at or above 90 percent capacity, leaving limited room to expand output without new investment. The path forward is becoming less about scale and more about what is produced and where value is captured.

Mexico is beginning to move toward a more specialized role within the North American supply chain, with greater emphasis on electronics, advanced components, and systems tied to next-generation vehicles. That transition is being shaped by trade rules under the USMCA, which are pushing manufacturers to source more content within the region, and by nearshoring, which continues to bring investment, though not always in the most advanced segments.

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A few years ago, Chinese auto brands were barely visible on Mexican roads. Today, they are becoming a serious force, moving quickly and reshaping the lower end of the market.The shift is not happening by accident.

Chinese manufacturers are combining state backing, private investment, and local partnerships to build a foothold that looks increasingly permanent. In 2025, five Chinese-origin brands, including MG Motor, JAC, Geely, Chirey, and Omoda, sold just over 100,000 vehicles in Mexico, according to official industry data. MG led by a wide margin, with JAC and Geely following.

Each company has taken a different path. JAC leaned into local production early, assembling vehicles in Hidalgo and earning the “Hecho en México” label. MG arrived later but scaled quickly under SAIC ownership. BYD has focused on electric and hybrid vehicles, building its presence through imports and a growing dealership network. Geely and Chirey are newer entrants, part of a broader global push that now clearly includes Mexico as a priority market.

The pace picked up again in early 2026. Chinese brands captured 11.2 percent of the market in the first quarter, matching German automakers for the first time. Sales rose more than 25 percent from a year earlier, with multiple brands contributing. What stands out is not one breakout success, but a widening field of competitors.

Pricing has played a central role. Competitive financing and aggressive promotions have helped these brands expand dealership networks and reach new buyers across the country. Imports from China continue to rise, now accounting for a significant share of Mexico’s auto market.

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Mexico’s economy has long had the look of a country ready to break out. It sits next to the largest consumer market in the world, has built a deep manufacturing base, and benefits from preferential access to the United States. Yet the breakout never comes.

The latest data offers a snapshot of that pattern in real time. Economic activity rose just 0.1 percent in February, according to INEGI, a modest rebound after a revised 0.7 percent contraction in January. The figure fell well short of expectations in a Reuters poll, where analysts had forecast a 0.5 percent increase. On an annual basis, activity declined 0.3 percent, missing projections for a 0.6 percent gain and extending the economy’s weak start to the year.

The underlying breakdown points to a broader loss of momentum. The primary sector and the labor-intensive services sector both slipped, down 0.1 percent and 0.3 percent, while only the industrial side, including manufacturing and construction, showed modest growth at 0.4 percent.

Over the past three decades, Mexico has averaged just over 2 percent annual growth. In recent years, that pace has slowed further. Growth averaged roughly 0.9 percent between 2018 and 2024 and came in at about 0.8 percent in 2025. Forecasts suggest only modest improvement, with the economy expected to expand about 1.5 percent this year and remain under 2 percent through 2026.

That outlook points to something more persistent than a typical slowdown. Economists increasingly describe the current environment as mild stagflation, where growth remains weak while inflation stays near the upper end of the central bank’s target. It is a combination Mexico has not sustained this long since the early 2000s.

The roots of the problem run deeper than the current cycle. Mexico’s economy remains divided between a productive formal sector and a much larger informal one. More than half the workforce operates outside formal structures, limiting productivity, tax collection, and long-term growth.

At the same time, job creation has not kept pace with demand. The number of registered employers has been declining for more than a year, a signal that businesses are closing, shrinking, or shifting off the books.

Productivity has also stalled. Output per worker has shown little improvement, and in some areas has slipped. Even with exports holding steady, especially those tied to the United States, the broader economy has not gained momentum. Household demand remains focused on basic consumption, supported by remittances and government transfers but not strong enough to drive expansion.

Against that backdrop, external pressures are adding another layer of strain. Inflation expectations have edged higher, in part due to rising energy costs linked to global tensions. At the same time, uncertainty over Mexico’s trade relationship with the United States and Canada is weighing on investment decisions.

On that front, the range of possible outcomes is wide, but not evenly balanced. Rodolfo Mitchell, Scotiabank’s Mexico head economist, said the best-case scenario would be a straightforward ratification of the current trade agreement. A less favorable outcome would be an inconclusive negotiation followed by annual reviews. “The worst-case scenario would be a formal renegotiation of the treaty since Mexico has very limited room for negotiation and would probably end up accepting most of the changes proposed by the U.S.,” Mitchell told Reuters.

Alfredo Coutino, director at Moody’s Analytics, expects a deal is still likely, but not without friction. “However, the negotiations will be marked by back-and-forth, friction, and threats of termination by the U.S., all with the intention of obtaining the best advantages and largely to impose its demands,” he said.

Even in the more optimistic scenarios, the underlying constraints remain. Businesses are hesitant to invest, unsure about the policy environment. Without stronger investment, hiring slows. Without hiring, productivity and growth remain limited.

Mexico is not facing a sudden downturn. It is facing a system that has settled into a slower gear. The danger is not collapse, but stagnation that becomes normalized, a pattern where the country continues to move forward, but never fast enough to change its trajectory.

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