October 29, 2025 • 29 mins
On this week's Trumponomics, host Stephanie Flanders focuses on Mexico, one of America's largest trading partners and a nation with a lot at stake in Donald Trump's global trade war. Flanders is joined by Alex Vasquez, Bloomberg economy and government reporter in Mexico City, and Felipe Hernandez, who covers Latin America for Bloomberg Economics. They discuss how Mexico’s first female president, Claudia Sheinbaum, has navigated Trump’s chaotic tariff threats and retreats and what’s at stake for her country’s economic future. The episode unpacks how Mexico might just turn the trade tables on the Republican president and, even outgrow the US by 2030.
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Speaker 1 (00:00):
Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2 (00:16):
I'm Stephanie Flanders, head of Government and Economics at Bloomberg,
and this is trump Anomics, the podcast that looks at
the economic world of Donald Trump, how he's already shaped
the global economy, and what on earth is going to
happen next. Well, this week we're looking at how the
country with the most to lose from Donald Trump's trade
(00:37):
wars is trying quietly to win them. In the world
of Donald Trump, you don't always want to be where
the action is. As I record this on Tuesday, twenty
eighth of October, most eyes are on Asia as the
President tours the region, making deals and headlines wherever he goes,
and at least as of now, he'll be meeting the
Chinese president later in the week to seal what is
(01:00):
already been billed as a great victory in his trade
war with that country. In fact, it's China who probably
now has the upper hand in that conversation and future ones.
And if you want to understand why, just listen to
the last episode of Trumpnomics with Arthur Kroeber. So instead,
my focus this week is on a country which has
largely avoided the headlines since President Trump came back to
(01:21):
the White House, but as one of America's largest trading partners,
has arguably even more at stake than China and a
lot weaker cards. Mexico sends a whopping eighty three percent
of its exports to the US on some measures, and
every time the President talks about blanket tariffs on the country,
its economy shudders. Yet somehow that hasn't happened. There have
(01:44):
been continual reprieves, and most of the credit goes to
Mexico's President, Claudia Scheinbaum, now entering her second year. So
how exactly has Mexico's first female president navigated the Trump
era so skillfully? And what's at stake in her continuing
to pull it off? Those are the questions we're answering
(02:07):
in this episode, And because we're Bloomberg Economics, we've brought numbers.
By our estimate, the difference for Mexico, for President Chinbaum
between managing this right and managing it wrong over the
next few years, we Reckon comes down to more than
four thousand dollars worth of additional economic growth for every man, woman,
and child in Mexico between now and twenty thirty. It's
(02:30):
on the good scenario, Mexico could even end up growing
faster than the US for the first time since two
thousand and eight. Probably won't want President Trump to notice that,
but as we're going to be hearing, that rosy outcome
is indeed far from guaranteed, So let's get into it.
Alex Vasquez is one of our economy and government reporters
in Mexico City joining me now.
Speaker 1 (02:51):
Alex, welcome, thank you, thank you for having me.
Speaker 2 (02:55):
And in New York's Felipe Hernandez, who covers Latin America
for US at Bloomberg Economy. He's got more than fifteen
years experience covering Latin America for Bloomberg, but also at
firms including Banco Santander and Deutsche Bank. I think it's
(03:16):
the first time for both of you. How has it
taken me so long? I guess that's another sign that
Mexico has quite happily been staying out of the headlines
over the last few months. Alex, remind us where we
are in the negotiations between the US and Mexico. As
I mentioned, it seems like no news has been good news.
Speaker 3 (03:35):
Yeah, I think shambong has managed to I think the
big achievement is to stay away of confrontation with Trump.
She doesn't speak much, and I think that something Trump appreciates,
and she has given him what he wants. She has
helped to stop migration by sending the National Guard to
(03:58):
the border. She has handed the US some important drug
traffickers that were.
Speaker 1 (04:05):
Jailed in Mexico.
Speaker 3 (04:06):
Right now, Mexico I think is the best country position
regarding tariff and regarding trade with the US because even
compared with Canada, which is also part of the US
Mexico and Canada trade agreement, I think Mexico doesn't have
like reciprocal tariff. It only has twenty five percent tariff
(04:28):
related to fentannel trafficking, but most of the Mexican goods
are free of tariff thanks to the trade deal. So
she has managed to do pretty well. Canada has higher tariff.
And she announced in a press conference that we had
a deadline for November first to race tariff in Mexico,
(04:49):
and she announced that it was extended again.
Speaker 4 (04:54):
I spoke with President Trump on Saturday, and we are
going to give it a few more weeks to be
a able to close the issue that is already very
advanced regarding the fifty four non tariff barriers. So we
agree to speak again in a week or so because
we are practically already closing this issue, because ultimately on
November one, that deadline closes that we had both set
(05:19):
for ourselves.
Speaker 3 (05:21):
Trump has mentioned that he has a lot of respect
for her, and you can tell that when she is
the one that announces in a press conference that they
had a phone conversation and they reach a deal to
continue negotiating, but that means no more tariff. So I
guess the big win is never engaged in a confrontation
(05:43):
and she never retaliated with tariff from Mexico. But obviously
there's a lot at stake because Mexico sends to the
US more than eighty percent of it.
Speaker 1 (05:52):
Techsp so she has to have a good relationship with Trump.
Speaker 2 (05:57):
I mean, we do tend to think about this and
terms of a sort of balance of power and some
of the countries, certainly the countries with very little leverage.
I'm thinking of some African economies and others that are
facing very high reciprocal tariffs. That does seem to be
about America sort of using its raw force to impose
(06:18):
things on other countries. Whereas we pointed out last week
with China, China has been very good at using the
leverage it has. It's particularly its control over these key
parts of the global supply chain, these rare earth magnets.
If you look at Mexico on the face of it,
you know it has It's a much smaller economy, has
much less to bring to the table, and these negotiations,
(06:39):
you say, she's given him everything he wants, but she
hasn't given him anything on the trade front, which is
obviously the most important for Mexico. Are there hidden forces
that are tipping the balance economically in favor of Mexico
in these negotiations? How has she managed to have this
ongoing reprieves where you know we're in China. They had
to actually threaten all this.
Speaker 3 (06:59):
Other have to get that Mexico is next to the
US and both economy are highly integrated. Sometimes to make
a car or even an auto part, the same piece
goes through the border several times. So I think a
lot of US companies have operations in Mexico.
Speaker 1 (07:22):
We know the labor force is cheaper here.
Speaker 3 (07:24):
Mexico has a pretty good manufacturing so I think Trump
has faced a lot of pressure.
Speaker 1 (07:31):
From different interests in the US.
Speaker 3 (07:34):
They pretty much don't want to have bad relationship with
Mexico because there's a lot of economic interests in Mexico.
Speaker 2 (07:43):
Does she ever talk about that, Does she ever say
speak directly to these big car manufacturers and others highlight
the stake orders she just letting them do the talking.
Speaker 3 (07:54):
Yeah, I mean she always mentions like, we have great
car manufacturers in Mexico. Even US companies are here for
general motors.
Speaker 1 (08:03):
They have big plants here in Mexico.
Speaker 3 (08:05):
So it's not that easy to move production to the
US in four years or in a year. So I
guess a lot of people in the US know that,
and that's why he's getting in the pitch. It sounds
good the companies are coming here and they're living in
other countries, and we're going to produce more in the US.
But in reality, you need to have factories in Mexico,
(08:27):
and she knows that. I guess that's her leverage. Even
if he wants to. It's not that easy to move
that production to the US in one, two or three
four years.
Speaker 2 (08:37):
So Philippe, we were quite interested in what was at
stake for Mexico over the next few years in managing
to dodge this particular bullet and did get some of
her other policies right. And you've helped Bloomberg reporters Alex
and others rise a big piece that's coming out about
Mexico being at a half trillion dollar crossroads. So talk
(09:00):
us through a little bit how much is at stake
for Mexico in the next few years.
Speaker 5 (09:04):
Well, as you mentioned, we started by saying or acknowledging
that Shane Bound has been forced to deal with two
very strong forces, one external which is dealing with all
of Trump's immigration, security, and trade policies, and one which
is domestic, which is Shane bum having to deal with
(09:26):
Amulo's legacy and am lost legacy has to do with
his social programs.
Speaker 2 (09:30):
As a previous the previous president Lorador, who is known as.
Speaker 5 (09:34):
That correct so she has had to deal with what
he left, which were big social programs and state centric
economy and a couple of reforms that have concentrated power
in the executive branch and taking out away some power
from both Congress and more recently the judiciary power. The
(09:56):
exercise that we did was look at different scenario about
where with the Mexican economy would be five years from
now under different assumptions. One assumption would be a positive
scenario that would be an a scenario in which Mexico
manages to avoid higher tariffs on its exports to the
(10:19):
US and in which President Shambaum implements economic policies that
are more market friendly than those implemented by her predecessor,
President Lopez o Dador. And a negative scenario in which
Mexico ends up with tariffs that are in line with
those with the reciprocal tariff in post on other countries,
(10:43):
so that's an reciprocal tariff on ten percent on top
of the twenty five percent Sentennil related tariff, and in
which President Shambaum implements domestic economic policies in line with
those that were implemented during the term of Lopezo or
in power. And the results that we found is that
(11:03):
assuming that an average economic growth in the US of
around two percent over the next five years, Mexico would
grow by an average two point two percent every year,
so slightly above US growth that by the end of
that five year forecast period would imply that Mexico's GDP
would be roughly four point eight, almost five percentage points
(11:24):
higher than in their status school a scenario. On the
other hand, if Mexico winds up with reciprocal tariffs and
economic policies that are fairly rated as market and friendly,
then average economic growth over this five year period could
be close to zero, and Mexico's economy by the year
(11:45):
of twenty and thirty would be almost six percentage points
lower than otherwise.
Speaker 2 (11:51):
Basically, it's a choice between going up and going down
in a very sophisticated economic way, and the difference in
terms of additional growth is half a trillion dollars we
should say, I mean, so, although she's managed to avoid
the headlines, we do still have this uncertainty hanging over
the economy thanks to these sort of continual reprieves, but
also the times where the president decides to talk tough.
(12:13):
If he's still talking about these blanket tariffs, that uncertainty
must be pretty corrosive for the economy right now. Can't
carry on in definitely.
Speaker 5 (12:22):
Like this absolutely, And actually when you look at the
figures for economic activity and the exports so far this year,
when people think about tariffs, they always think about what
will happen with trade and exports. When you look at
the exports numbers so far this year for Mexico, they
show that despite tariffs the fantany related tariffs imposed by
(12:47):
the US administration, exports to the US are still growing
and are still growing at a healthy pace. I would
say the real big negative impact so far on the
Mexican economy from tariffs has been on the investment side,
and that is actually exactly in line with the point
(13:07):
that you are making, and is the drag from this
uncertainty about what will happen with trade and tariffs in
the future, and how that has forced a lot of
companies that had investment plans in Mexico to put those
on hold. And there's a lot of companies with projects
(13:28):
that they are ready to start deploying that have decided
to just wait and see until they have real clarity
about what is going to happen in the bilateral relations
and bilateral trade between the two governments and.
Speaker 2 (13:54):
Felipe. If you just look at the way things have
gone this year and the way that President Chinbaum has
managed to navigate this so far, would you say the
friend shoring model was still alive and you wouldn't count
it out just on the basis of what actually happened
this year, as opposed to just the rhetoric of Donald Trump.
Speaker 5 (14:14):
Yeah, I would say that there's a big pipeline of
investment projects, a lot of them that were born under
the mere shoring boom and all of the expectations about
how Mexico could benefit from these There's a lot of
these projects that are now on hold. I would say
that they are still on hold. They have not been
(14:36):
completely ruled out. And basically what many of the companies
that have these projects are waiting is for some clarity
regarding what is going to happen going forward in the
bilateral relations between Mexico and the US. As soon as
they have some clarity about that, they will make a
decision if they want to go ahead with these projects
(14:57):
or not. And I would say that going to ahea
head with these projects doesn't necessarily imply that Mexico will
not face some tariffs on their exports to the US.
There's a lot of projects that as long as Mexico
has more attractive tariffs than the rest of the world,
including Canada, will imply that maybe Mexico will end up
(15:21):
seeing the influence and the investment flows tied to those
projects as long, of course, as those tariffs also leave
Mexico in a position where it makes more sense for
the companies to invest in Mexico than in the US.
But given the differences in costs mainly labor costs, but
(15:41):
other costs as well, these are some projects that I
would say are still viable even with some tariffs in place,
which I think it's likely to be the final outcome
of all of these. But to answer your question, it
means that, yes, Mexico is in a position where a
lot of these near shoring projects would still be developed.
Speaker 2 (16:02):
Alex I'm interested in how this is going down with
the Mexican public because President Scheinbam's got another five five
more years, so she's got a while. But you started
the podcast by saying she's given the president everything he wants.
Is there a perception that she's played this well or
that has been to quiet and meek with regard to
(16:24):
the president house her popularity.
Speaker 3 (16:26):
She's entering her second year and she remains highly popular.
She has more than seventy percent of approval ratings. Sometimes,
according to some pools, around eighty percent of appro rating it's.
Speaker 2 (16:40):
Quite a lot more popular than President Trump or In
or indeed most other leaders.
Speaker 1 (16:46):
Yeah, even then Lopezo with at all, which is crazy, right.
Speaker 3 (16:49):
So I guess she has managed to have two speeches.
One for the US public, the economy is the politicians,
where she's discussing these tray issues. She's pretty much recognizing
that she has to have a good relationship with Trump,
But she also has another speech for the base that's
(17:10):
pretty much Mexico is a sovereign country. The US will
never enter Mexico to try to dismantle fentany or laboratories,
or to detain drop traffickers or stop migration. She's very careful,
and we can see that when she's doing like a
rally in a state around the country. She goes to
(17:31):
this speech and that goes pretty well with the base.
I'm not trying to assume that the base don't understand
what she's doing.
Speaker 1 (17:39):
They do.
Speaker 3 (17:40):
And when you talk to people that tell you she
has handled from pretty well.
Speaker 1 (17:45):
The pesto is good, the pestot.
Speaker 3 (17:47):
Is stronger, we don't have more tariff. She's raising the
minimum ways and that kind of stuff. We're getting the pension.
So people see that. I guess they're happy, and.
Speaker 2 (17:58):
A small philosophical question. It's not a question at all. Ever,
since NAFTA, which is now more than thirty years ago,
the country has made a bet on being closer and
closer to the US, and as you described, alex the
integration of the supply chains has probably gone further than
anyone might have expected back in back when that treaty
(18:18):
was signed. These days we talk a lot about countries
looking to diversify, being concerned about the US being so
uncertain on being an unreliable ally these constant threats. He
seems to be particularly rude, often to his friends. Is
anyone questioning that? I mean, you would look at Mexico
and say, wouldn't be so bad to be a bit
(18:40):
more diversified in your exports, to not be so dependent
on the US. But is that even an option for Mexico.
Speaker 3 (18:47):
In a normal scenario, this will be an option. But
we're in a moment that you just cannot upset Trump.
Mexico is improving a free trade deal with the European Union,
working on that. They're trying to have more cooperation and
more trade with Brazil, for example, which is a huge country.
Speaker 1 (19:06):
But they're pretty shy about it.
Speaker 3 (19:09):
Even Canada McCartney has sent to Mexico his main minister
is trying to reach a better bilateral deal between both
countries to be stronger for training negotiations. And what has
been the US response has been like, maybe the USMCA
negotiation will be bilateral instead of trade lateral, because he
(19:31):
knows that they're stronger together. So I guess that's one
of the complicated issues. Everybody knows that Mexico should diversify
its economy. I think the government is trying. It's being shy,
but it's trying. But it's hard because if you're sending
eighty percent of your experts and you're a manufacturing country,
you cannot upset your northern neighbor.
Speaker 2 (19:53):
If you allow me.
Speaker 5 (19:54):
Adding one more thing about that, and is that yes,
as Alex mentioned, government officials and people in Mexico would
like to have a better diversified trade, as you mentioned,
and as Alex was explaining, it's now probably not the
best time to do it. And there's like serious worries
about what would happen to Mexico if you jeopardize at
(20:17):
all the trade relations with the US. And because of
all of those constraints and concerns. Actually, along with the
budget for twenty twenty six, the government submitted the proposal
to impose tariffs on imports from China and other countries
into Mexico. Countries with which Mexico doesn't have a free
(20:38):
trade agreement.
Speaker 2 (20:39):
Was that far after US pressure? Do you think? What
do you think was driving now?
Speaker 5 (20:43):
It's well known that the US, as part of negotiating
with Mexico, wants to make sure that Mexico implements some
trade barriers with China in order to make sure that
China is not used in Mexico and third countries to
serve convent the tariffs that the US has imposed on China.
(21:04):
There's a lot of talk and actually some evidence that
shows that exports from China to Mexico have sharply increased
in the last couple of years, which coincides with the
increasing US tariffs on imports from China, and that has
all inspired or points to some triangulation of exports from
(21:26):
China through Mexico that finally end up in the US
to avoid US tariffs. The US is aware of these
and has asked to Mexico to take steps in order
to prevent these and the initiative for Mexico to impose
tariffs on their imports from China is pretty much aligned
with that. I think is part of Mexico's attempt to
(21:48):
have something to show to the US about their willingness
to cooperate and their hope that with steps like those,
they are showing the commitment that they have to have a
lateral relationship with the US, and then they are willing
to compromise in order to secure that the free trade
agreement with next with the US will remain in place
(22:10):
once it's reviewed next year.
Speaker 3 (22:13):
And I'm glad philipp mentioned that, if I may it,
because she sent this proposal to Congress. We're talking about
like more than a thousand categories of products, including steel, toys, textiles, shoes,
you name it. We have a lot of stuff, but
this you would expect that Congress would pass it like
(22:34):
right away because they have the majority. They decided to
delay the discussion, and I've been talking to several lawmakers
from the ruling party, and I guess this is when
you know these old school groups from Lopezo re Alora,
they're not that happy to raising tariffs on China because
they want to have a good relationship.
Speaker 2 (22:55):
You CUsing off your options.
Speaker 3 (22:57):
Yeah, that's right, and they want to keep a good
relationship China. So this is a perfect example that maybe
she doesn't have a strong real opposition, but within the party,
she's not breed to do whatever she wants. So they're
discussing this, trying to move the numbers a little bit.
So this doesn't look too bad for China. Still pleases
(23:19):
strump So that's the balance.
Speaker 2 (23:21):
Both of you. Just very quickly, if people who are
not tuning in to Mexico very often, maybe occasionally see
President Scheinbaum come in a viral clip when she's talking
about the Gulf of Mexico versus the Gulf of America.
Are their potential flash points in the next few months
that we should look at, because we've talked about a
very narrow line that she has to walk between some
(23:43):
of this kind of internal opposition, not very much, but
some concern and instincts versus the pressure from the US
and the vital importance of that trading relationship. What are
the things to watch out for over the next few
months to know how this is going to go.
Speaker 5 (24:02):
I would pay attention to two things, or basically one
acknowledging that the external front is very important. But on
that front, the final decision really or I would say
seventy five percent of the decision or the outcome on
that front is not under shame Baum's control, but on
(24:22):
the White House and President Trump. So yes, keep an
eye on that, but be aware that Trump is still
probably the one that will decide the end result of that,
with some input from Shameebaum, and of course a lot
based on how Shaanebaum deals with Trump, which until now
she has done fairly well, and therefore I would assume
she will continue to do. And I'll be not so
(24:43):
worried about what Shamee Baum does about the trade relationship
with the US, but more about what Trump does on
that front. I would pay more attention to what Shane
Baum says regarding domestic economic policies. How much shame Boum
really moves away from the attack from her predecessor, Ovador
attacks against the private industry and private investment. How at
(25:07):
least from what we have seen so far, she keeps
moving forward with a more market friendly economic policy framework,
which is starting to generate a little bit more of
confidence and optimism domestically among private investment investors. As long
as she keeps moving in that direction, I would say
(25:30):
investors and people that follow Mexico could be a little
bit more optimistic about Mexico's outlook. And as we have
discussed so far in this podcast, she still has to
strike a balance between the more market friendly economic policies
and those policies that her predecessor was implementing which were
(25:53):
not that friendly, but that she needs to make sure
that she keeps his support to make sure that Governori
doesn't turn into an issue for her.
Speaker 3 (26:03):
Yeah, I agree with what Felipe is saying. I think
in the external front, the only thing we should expect,
probably for the next three years, is uncertainty. We don't
know what's going to happen. I think markets are really
pretty well what's going on. We're seeing the PESL very strong,
(26:24):
the Mexican bonds, so I think the market is reading that.
I think the current deal we have is good for Trump,
That's why it hasn't changed. It seems like he came
to power yesterday, but it's been almost a year, so
I don't think things are going to change much for Mexico. Obviously,
we have the free Trade review and we should keep
(26:48):
special attention to that. But I agree with Philippe, we
should pay special attention to the domestic front. And she's
doing efforts to maybe not diversify the economy, but the
endless on the US. She proposed in January, knowing what
Trunk was going to do to create these development hobs.
These are some development hubs in different areas in the
(27:11):
country to attract investment.
Speaker 1 (27:12):
Since near sharing was low.
Speaker 3 (27:14):
In because everybody knew TRUP was going to win, she's
giving tax incentives to foreign companies to invest in Mexico.
I visited a couple and this is just empty land yet,
so this shows a little bit that the investment are
not here. So we should pay attention to what she's
going to do to attract investment. And I think the
(27:35):
key sector is energy. Mexico lacks energy, and if especially
power generation and transmission, and if you want companies to come,
we need to see more energy projects and we're not
seeing that right now.
Speaker 1 (27:49):
So I guess that's the key.
Speaker 3 (27:51):
If she is able to attract investment, that's the only
way to depend less on the US.
Speaker 2 (27:57):
I guess you should have to keep getting to the
empty bit of ground, look for green shoots. Well, if
anybody from a President Chinbaum staff is listening, or I
do the President herself, she is more than welcome to
come on Trumpnomics and explain exactly how she's going to
navigate these difficult waters. I'm going to be in Mexico
myself in early December. I'll be happy to go and
see her anytime, any place. But in the meantime we
(28:19):
have something almost as good. Filipe and Alex, thank you
so much.
Speaker 1 (28:23):
Thank you, Stephanie, thank you too.
Speaker 2 (28:32):
Thanks for listening to trump Andomics from Bloomberg. It was
hosted by me, Stephanie Flanders, and I was joined this
week by Bloomberg's Alex Vaswez and Philip Bernandez. Trump Andomics
was produced by Sammasadi and Moses and Am, with help
from Amy Keene and special thanks to Rachel Lewis Chrisky.
Sound design is by Blake Maples and Kelly Gary, and
Sage Bowman is Bloomberg's head of podcasts. To help others
(28:57):
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Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2 (00:16):
I'm Stephanie Flanders, head of Government and Economics at Bloomberg,
and this is trump Anomics, the podcast that looks at
the economic world of Donald Trump, how he's already shaped
the global economy, and what on earth is going to
happen next. Well, this week we're looking at how the
country with the most to lose from Donald Trump's trade
(00:37):
wars is trying quietly to win them. In the world
of Donald Trump, you don't always want to be where
the action is. As I record this on Tuesday, twenty
eighth of October, most eyes are on Asia as the
President tours the region, making deals and headlines wherever he goes,
and at least as of now, he'll be meeting the
Chinese president later in the week to seal what is
(01:00):
already been billed as a great victory in his trade
war with that country. In fact, it's China who probably
now has the upper hand in that conversation and future ones.
And if you want to understand why, just listen to
the last episode of Trumpnomics with Arthur Kroeber. So instead,
my focus this week is on a country which has
largely avoided the headlines since President Trump came back to
(01:21):
the White House, but as one of America's largest trading partners,
has arguably even more at stake than China and a
lot weaker cards. Mexico sends a whopping eighty three percent
of its exports to the US on some measures, and
every time the President talks about blanket tariffs on the country,
its economy shudders. Yet somehow that hasn't happened. There have
(01:44):
been continual reprieves, and most of the credit goes to
Mexico's President, Claudia Scheinbaum, now entering her second year. So
how exactly has Mexico's first female president navigated the Trump
era so skillfully? And what's at stake in her continuing
to pull it off? Those are the questions we're answering
(02:07):
in this episode, And because we're Bloomberg Economics, we've brought numbers.
By our estimate, the difference for Mexico, for President Chinbaum
between managing this right and managing it wrong over the
next few years, we Reckon comes down to more than
four thousand dollars worth of additional economic growth for every man, woman,
and child in Mexico between now and twenty thirty. It's
(02:30):
on the good scenario, Mexico could even end up growing
faster than the US for the first time since two
thousand and eight. Probably won't want President Trump to notice that,
but as we're going to be hearing, that rosy outcome
is indeed far from guaranteed, So let's get into it.
Alex Vasquez is one of our economy and government reporters
in Mexico City joining me now.
Speaker 1 (02:51):
Alex, welcome, thank you, thank you for having me.
Speaker 2 (02:55):
And in New York's Felipe Hernandez, who covers Latin America
for US at Bloomberg Economy. He's got more than fifteen
years experience covering Latin America for Bloomberg, but also at
firms including Banco Santander and Deutsche Bank. I think it's
(03:16):
the first time for both of you. How has it
taken me so long? I guess that's another sign that
Mexico has quite happily been staying out of the headlines
over the last few months. Alex, remind us where we
are in the negotiations between the US and Mexico. As
I mentioned, it seems like no news has been good news.
Speaker 3 (03:35):
Yeah, I think shambong has managed to I think the
big achievement is to stay away of confrontation with Trump.
She doesn't speak much, and I think that something Trump appreciates,
and she has given him what he wants. She has
helped to stop migration by sending the National Guard to
(03:58):
the border. She has handed the US some important drug
traffickers that were.
Speaker 1 (04:05):
Jailed in Mexico.
Speaker 3 (04:06):
Right now, Mexico I think is the best country position
regarding tariff and regarding trade with the US because even
compared with Canada, which is also part of the US
Mexico and Canada trade agreement, I think Mexico doesn't have
like reciprocal tariff. It only has twenty five percent tariff
(04:28):
related to fentannel trafficking, but most of the Mexican goods
are free of tariff thanks to the trade deal. So
she has managed to do pretty well. Canada has higher tariff.
And she announced in a press conference that we had
a deadline for November first to race tariff in Mexico,
(04:49):
and she announced that it was extended again.
Speaker 4 (04:54):
I spoke with President Trump on Saturday, and we are
going to give it a few more weeks to be
a able to close the issue that is already very
advanced regarding the fifty four non tariff barriers. So we
agree to speak again in a week or so because
we are practically already closing this issue, because ultimately on
November one, that deadline closes that we had both set
(05:19):
for ourselves.
Speaker 3 (05:21):
Trump has mentioned that he has a lot of respect
for her, and you can tell that when she is
the one that announces in a press conference that they
had a phone conversation and they reach a deal to
continue negotiating, but that means no more tariff. So I
guess the big win is never engaged in a confrontation
(05:43):
and she never retaliated with tariff from Mexico. But obviously
there's a lot at stake because Mexico sends to the
US more than eighty percent of it.
Speaker 1 (05:52):
Techsp so she has to have a good relationship with Trump.
Speaker 2 (05:57):
I mean, we do tend to think about this and
terms of a sort of balance of power and some
of the countries, certainly the countries with very little leverage.
I'm thinking of some African economies and others that are
facing very high reciprocal tariffs. That does seem to be
about America sort of using its raw force to impose
(06:18):
things on other countries. Whereas we pointed out last week
with China, China has been very good at using the
leverage it has. It's particularly its control over these key
parts of the global supply chain, these rare earth magnets.
If you look at Mexico on the face of it,
you know it has It's a much smaller economy, has
much less to bring to the table, and these negotiations,
(06:39):
you say, she's given him everything he wants, but she
hasn't given him anything on the trade front, which is
obviously the most important for Mexico. Are there hidden forces
that are tipping the balance economically in favor of Mexico
in these negotiations? How has she managed to have this
ongoing reprieves where you know we're in China. They had
to actually threaten all this.
Speaker 3 (06:59):
Other have to get that Mexico is next to the
US and both economy are highly integrated. Sometimes to make
a car or even an auto part, the same piece
goes through the border several times. So I think a
lot of US companies have operations in Mexico.
Speaker 1 (07:22):
We know the labor force is cheaper here.
Speaker 3 (07:24):
Mexico has a pretty good manufacturing so I think Trump
has faced a lot of pressure.
Speaker 1 (07:31):
From different interests in the US.
Speaker 3 (07:34):
They pretty much don't want to have bad relationship with
Mexico because there's a lot of economic interests in Mexico.
Speaker 2 (07:43):
Does she ever talk about that, Does she ever say
speak directly to these big car manufacturers and others highlight
the stake orders she just letting them do the talking.
Speaker 3 (07:54):
Yeah, I mean she always mentions like, we have great
car manufacturers in Mexico. Even US companies are here for
general motors.
Speaker 1 (08:03):
They have big plants here in Mexico.
Speaker 3 (08:05):
So it's not that easy to move production to the
US in four years or in a year. So I
guess a lot of people in the US know that,
and that's why he's getting in the pitch. It sounds
good the companies are coming here and they're living in
other countries, and we're going to produce more in the US.
But in reality, you need to have factories in Mexico,
(08:27):
and she knows that. I guess that's her leverage. Even
if he wants to. It's not that easy to move
that production to the US in one, two or three
four years.
Speaker 2 (08:37):
So Philippe, we were quite interested in what was at
stake for Mexico over the next few years in managing
to dodge this particular bullet and did get some of
her other policies right. And you've helped Bloomberg reporters Alex
and others rise a big piece that's coming out about
Mexico being at a half trillion dollar crossroads. So talk
(09:00):
us through a little bit how much is at stake
for Mexico in the next few years.
Speaker 5 (09:04):
Well, as you mentioned, we started by saying or acknowledging
that Shane Bound has been forced to deal with two
very strong forces, one external which is dealing with all
of Trump's immigration, security, and trade policies, and one which
is domestic, which is Shane bum having to deal with
(09:26):
Amulo's legacy and am lost legacy has to do with
his social programs.
Speaker 2 (09:30):
As a previous the previous president Lorador, who is known as.
Speaker 5 (09:34):
That correct so she has had to deal with what
he left, which were big social programs and state centric
economy and a couple of reforms that have concentrated power
in the executive branch and taking out away some power
from both Congress and more recently the judiciary power. The
(09:56):
exercise that we did was look at different scenario about
where with the Mexican economy would be five years from
now under different assumptions. One assumption would be a positive
scenario that would be an a scenario in which Mexico
manages to avoid higher tariffs on its exports to the
(10:19):
US and in which President Shambaum implements economic policies that
are more market friendly than those implemented by her predecessor,
President Lopez o Dador. And a negative scenario in which
Mexico ends up with tariffs that are in line with
those with the reciprocal tariff in post on other countries,
(10:43):
so that's an reciprocal tariff on ten percent on top
of the twenty five percent Sentennil related tariff, and in
which President Shambaum implements domestic economic policies in line with
those that were implemented during the term of Lopezo or
in power. And the results that we found is that
(11:03):
assuming that an average economic growth in the US of
around two percent over the next five years, Mexico would
grow by an average two point two percent every year,
so slightly above US growth that by the end of
that five year forecast period would imply that Mexico's GDP
would be roughly four point eight, almost five percentage points
(11:24):
higher than in their status school a scenario. On the
other hand, if Mexico winds up with reciprocal tariffs and
economic policies that are fairly rated as market and friendly,
then average economic growth over this five year period could
be close to zero, and Mexico's economy by the year
(11:45):
of twenty and thirty would be almost six percentage points
lower than otherwise.
Speaker 2 (11:51):
Basically, it's a choice between going up and going down
in a very sophisticated economic way, and the difference in
terms of additional growth is half a trillion dollars we
should say, I mean, so, although she's managed to avoid
the headlines, we do still have this uncertainty hanging over
the economy thanks to these sort of continual reprieves, but
also the times where the president decides to talk tough.
(12:13):
If he's still talking about these blanket tariffs, that uncertainty
must be pretty corrosive for the economy right now. Can't
carry on in definitely.
Speaker 5 (12:22):
Like this absolutely, And actually when you look at the
figures for economic activity and the exports so far this year,
when people think about tariffs, they always think about what
will happen with trade and exports. When you look at
the exports numbers so far this year for Mexico, they
show that despite tariffs the fantany related tariffs imposed by
(12:47):
the US administration, exports to the US are still growing
and are still growing at a healthy pace. I would
say the real big negative impact so far on the
Mexican economy from tariffs has been on the investment side,
and that is actually exactly in line with the point
(13:07):
that you are making, and is the drag from this
uncertainty about what will happen with trade and tariffs in
the future, and how that has forced a lot of
companies that had investment plans in Mexico to put those
on hold. And there's a lot of companies with projects
(13:28):
that they are ready to start deploying that have decided
to just wait and see until they have real clarity
about what is going to happen in the bilateral relations
and bilateral trade between the two governments and.
Speaker 2 (13:54):
Felipe. If you just look at the way things have
gone this year and the way that President Chinbaum has
managed to navigate this so far, would you say the
friend shoring model was still alive and you wouldn't count
it out just on the basis of what actually happened
this year, as opposed to just the rhetoric of Donald Trump.
Speaker 5 (14:14):
Yeah, I would say that there's a big pipeline of
investment projects, a lot of them that were born under
the mere shoring boom and all of the expectations about
how Mexico could benefit from these There's a lot of
these projects that are now on hold. I would say
that they are still on hold. They have not been
(14:36):
completely ruled out. And basically what many of the companies
that have these projects are waiting is for some clarity
regarding what is going to happen going forward in the
bilateral relations between Mexico and the US. As soon as
they have some clarity about that, they will make a
decision if they want to go ahead with these projects
(14:57):
or not. And I would say that going to ahea
head with these projects doesn't necessarily imply that Mexico will
not face some tariffs on their exports to the US.
There's a lot of projects that as long as Mexico
has more attractive tariffs than the rest of the world,
including Canada, will imply that maybe Mexico will end up
(15:21):
seeing the influence and the investment flows tied to those
projects as long, of course, as those tariffs also leave
Mexico in a position where it makes more sense for
the companies to invest in Mexico than in the US.
But given the differences in costs mainly labor costs, but
(15:41):
other costs as well, these are some projects that I
would say are still viable even with some tariffs in place,
which I think it's likely to be the final outcome
of all of these. But to answer your question, it
means that, yes, Mexico is in a position where a
lot of these near shoring projects would still be developed.
Speaker 2 (16:02):
Alex I'm interested in how this is going down with
the Mexican public because President Scheinbam's got another five five
more years, so she's got a while. But you started
the podcast by saying she's given the president everything he wants.
Is there a perception that she's played this well or
that has been to quiet and meek with regard to
(16:24):
the president house her popularity.
Speaker 3 (16:26):
She's entering her second year and she remains highly popular.
She has more than seventy percent of approval ratings. Sometimes,
according to some pools, around eighty percent of appro rating it's.
Speaker 2 (16:40):
Quite a lot more popular than President Trump or In
or indeed most other leaders.
Speaker 1 (16:46):
Yeah, even then Lopezo with at all, which is crazy, right.
Speaker 3 (16:49):
So I guess she has managed to have two speeches.
One for the US public, the economy is the politicians,
where she's discussing these tray issues. She's pretty much recognizing
that she has to have a good relationship with Trump,
But she also has another speech for the base that's
(17:10):
pretty much Mexico is a sovereign country. The US will
never enter Mexico to try to dismantle fentany or laboratories,
or to detain drop traffickers or stop migration. She's very careful,
and we can see that when she's doing like a
rally in a state around the country. She goes to
(17:31):
this speech and that goes pretty well with the base.
I'm not trying to assume that the base don't understand
what she's doing.
Speaker 1 (17:39):
They do.
Speaker 3 (17:40):
And when you talk to people that tell you she
has handled from pretty well.
Speaker 1 (17:45):
The pesto is good, the pestot.
Speaker 3 (17:47):
Is stronger, we don't have more tariff. She's raising the
minimum ways and that kind of stuff. We're getting the pension.
So people see that. I guess they're happy, and.
Speaker 2 (17:58):
A small philosophical question. It's not a question at all. Ever,
since NAFTA, which is now more than thirty years ago,
the country has made a bet on being closer and
closer to the US, and as you described, alex the
integration of the supply chains has probably gone further than
anyone might have expected back in back when that treaty
(18:18):
was signed. These days we talk a lot about countries
looking to diversify, being concerned about the US being so
uncertain on being an unreliable ally these constant threats. He
seems to be particularly rude, often to his friends. Is
anyone questioning that? I mean, you would look at Mexico
and say, wouldn't be so bad to be a bit
(18:40):
more diversified in your exports, to not be so dependent
on the US. But is that even an option for Mexico.
Speaker 3 (18:47):
In a normal scenario, this will be an option. But
we're in a moment that you just cannot upset Trump.
Mexico is improving a free trade deal with the European Union,
working on that. They're trying to have more cooperation and
more trade with Brazil, for example, which is a huge country.
Speaker 1 (19:06):
But they're pretty shy about it.
Speaker 3 (19:09):
Even Canada McCartney has sent to Mexico his main minister
is trying to reach a better bilateral deal between both
countries to be stronger for training negotiations. And what has
been the US response has been like, maybe the USMCA
negotiation will be bilateral instead of trade lateral, because he
(19:31):
knows that they're stronger together. So I guess that's one
of the complicated issues. Everybody knows that Mexico should diversify
its economy. I think the government is trying. It's being shy,
but it's trying. But it's hard because if you're sending
eighty percent of your experts and you're a manufacturing country,
you cannot upset your northern neighbor.
Speaker 2 (19:53):
If you allow me.
Speaker 5 (19:54):
Adding one more thing about that, and is that yes,
as Alex mentioned, government officials and people in Mexico would
like to have a better diversified trade, as you mentioned,
and as Alex was explaining, it's now probably not the
best time to do it. And there's like serious worries
about what would happen to Mexico if you jeopardize at
(20:17):
all the trade relations with the US. And because of
all of those constraints and concerns. Actually, along with the
budget for twenty twenty six, the government submitted the proposal
to impose tariffs on imports from China and other countries
into Mexico. Countries with which Mexico doesn't have a free
(20:38):
trade agreement.
Speaker 2 (20:39):
Was that far after US pressure? Do you think? What
do you think was driving now?
Speaker 5 (20:43):
It's well known that the US, as part of negotiating
with Mexico, wants to make sure that Mexico implements some
trade barriers with China in order to make sure that
China is not used in Mexico and third countries to
serve convent the tariffs that the US has imposed on China.
(21:04):
There's a lot of talk and actually some evidence that
shows that exports from China to Mexico have sharply increased
in the last couple of years, which coincides with the
increasing US tariffs on imports from China, and that has
all inspired or points to some triangulation of exports from
(21:26):
China through Mexico that finally end up in the US
to avoid US tariffs. The US is aware of these
and has asked to Mexico to take steps in order
to prevent these and the initiative for Mexico to impose
tariffs on their imports from China is pretty much aligned
with that. I think is part of Mexico's attempt to
(21:48):
have something to show to the US about their willingness
to cooperate and their hope that with steps like those,
they are showing the commitment that they have to have a
lateral relationship with the US, and then they are willing
to compromise in order to secure that the free trade
agreement with next with the US will remain in place
(22:10):
once it's reviewed next year.
Speaker 3 (22:13):
And I'm glad philipp mentioned that, if I may it,
because she sent this proposal to Congress. We're talking about
like more than a thousand categories of products, including steel, toys, textiles, shoes,
you name it. We have a lot of stuff, but
this you would expect that Congress would pass it like
(22:34):
right away because they have the majority. They decided to
delay the discussion, and I've been talking to several lawmakers
from the ruling party, and I guess this is when
you know these old school groups from Lopezo re Alora,
they're not that happy to raising tariffs on China because
they want to have a good relationship.
Speaker 2 (22:55):
You CUsing off your options.
Speaker 3 (22:57):
Yeah, that's right, and they want to keep a good
relationship China. So this is a perfect example that maybe
she doesn't have a strong real opposition, but within the party,
she's not breed to do whatever she wants. So they're
discussing this, trying to move the numbers a little bit.
So this doesn't look too bad for China. Still pleases
(23:19):
strump So that's the balance.
Speaker 2 (23:21):
Both of you. Just very quickly, if people who are
not tuning in to Mexico very often, maybe occasionally see
President Scheinbaum come in a viral clip when she's talking
about the Gulf of Mexico versus the Gulf of America.
Are their potential flash points in the next few months
that we should look at, because we've talked about a
very narrow line that she has to walk between some
(23:43):
of this kind of internal opposition, not very much, but
some concern and instincts versus the pressure from the US
and the vital importance of that trading relationship. What are
the things to watch out for over the next few
months to know how this is going to go.
Speaker 5 (24:02):
I would pay attention to two things, or basically one
acknowledging that the external front is very important. But on
that front, the final decision really or I would say
seventy five percent of the decision or the outcome on
that front is not under shame Baum's control, but on
(24:22):
the White House and President Trump. So yes, keep an
eye on that, but be aware that Trump is still
probably the one that will decide the end result of that,
with some input from Shameebaum, and of course a lot
based on how Shaanebaum deals with Trump, which until now
she has done fairly well, and therefore I would assume
she will continue to do. And I'll be not so
(24:43):
worried about what Shamee Baum does about the trade relationship
with the US, but more about what Trump does on
that front. I would pay more attention to what Shane
Baum says regarding domestic economic policies. How much shame Boum
really moves away from the attack from her predecessor, Ovador
attacks against the private industry and private investment. How at
(25:07):
least from what we have seen so far, she keeps
moving forward with a more market friendly economic policy framework,
which is starting to generate a little bit more of
confidence and optimism domestically among private investment investors. As long
as she keeps moving in that direction, I would say
(25:30):
investors and people that follow Mexico could be a little
bit more optimistic about Mexico's outlook. And as we have
discussed so far in this podcast, she still has to
strike a balance between the more market friendly economic policies
and those policies that her predecessor was implementing which were
(25:53):
not that friendly, but that she needs to make sure
that she keeps his support to make sure that Governori
doesn't turn into an issue for her.
Speaker 3 (26:03):
Yeah, I agree with what Felipe is saying. I think
in the external front, the only thing we should expect,
probably for the next three years, is uncertainty. We don't
know what's going to happen. I think markets are really
pretty well what's going on. We're seeing the PESL very strong,
(26:24):
the Mexican bonds, so I think the market is reading that.
I think the current deal we have is good for Trump,
That's why it hasn't changed. It seems like he came
to power yesterday, but it's been almost a year, so
I don't think things are going to change much for Mexico. Obviously,
we have the free Trade review and we should keep
(26:48):
special attention to that. But I agree with Philippe, we
should pay special attention to the domestic front. And she's
doing efforts to maybe not diversify the economy, but the
endless on the US. She proposed in January, knowing what
Trunk was going to do to create these development hobs.
These are some development hubs in different areas in the
(27:11):
country to attract investment.
Speaker 1 (27:12):
Since near sharing was low.
Speaker 3 (27:14):
In because everybody knew TRUP was going to win, she's
giving tax incentives to foreign companies to invest in Mexico.
I visited a couple and this is just empty land yet,
so this shows a little bit that the investment are
not here. So we should pay attention to what she's
going to do to attract investment. And I think the
(27:35):
key sector is energy. Mexico lacks energy, and if especially
power generation and transmission, and if you want companies to come,
we need to see more energy projects and we're not
seeing that right now.
Speaker 1 (27:49):
So I guess that's the key.
Speaker 3 (27:51):
If she is able to attract investment, that's the only
way to depend less on the US.
Speaker 2 (27:57):
I guess you should have to keep getting to the
empty bit of ground, look for green shoots. Well, if
anybody from a President Chinbaum staff is listening, or I
do the President herself, she is more than welcome to
come on Trumpnomics and explain exactly how she's going to
navigate these difficult waters. I'm going to be in Mexico
myself in early December. I'll be happy to go and
see her anytime, any place. But in the meantime we
(28:19):
have something almost as good. Filipe and Alex, thank you
so much.
Speaker 1 (28:23):
Thank you, Stephanie, thank you too.
Speaker 2 (28:32):
Thanks for listening to trump Andomics from Bloomberg. It was
hosted by me, Stephanie Flanders, and I was joined this
week by Bloomberg's Alex Vaswez and Philip Bernandez. Trump Andomics
was produced by Sammasadi and Moses and Am, with help
from Amy Keene and special thanks to Rachel Lewis Chrisky.
Sound design is by Blake Maples and Kelly Gary, and
Sage Bowman is Bloomberg's head of podcasts. To help others
(28:57):
find the show, please rate it and review it highly
wherever you listen.
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