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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 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 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 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 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 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 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.
Alex, welcome, thank you, thank you for having me.
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 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.
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 the border. She has handed the US some important drug traffickers that were.
Jailed in Mexico.
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 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, and she announced that it was extended again.
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 for ourselves.
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 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.
Techsp so she has to have a good relationship with Trump.
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 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, 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.
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.
We know the labor force is cheaper here.
Mexico has a pretty good manufacturing so I think Trump has faced a lot of pressure.
From different interests in the US.
They pretty much don't want to have bad relationship with Mexico because there's a lot of economic interests in Mexico.
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.
Yeah, I mean she always mentions like, we have great car manufacturers in Mexico. Even US companies are here for general motors.
They have big plants here in Mexico.
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, 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.
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 us through a little bit how much is at stake for Mexico in the next few years.
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 Amulo's legacy and am lost legacy has to do with his social programs.
As a previous the previous president Lorador, who is known as.
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 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 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, 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 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
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 of twenty and thirty would be almost six percentage points lower than otherwise.
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. 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.
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 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 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 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.
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.
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 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 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 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 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.
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 the president house her popularity.
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.
Quite a lot more popular than President Trump or In or indeed most other leaders.
Yeah, even then Lopezo with at all, which is crazy, right.
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 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 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.
They do.
And when you talk to people that tell you she has handled from pretty well.
The pesto is good, the pestot.
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.
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 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 more diversified in your exports, to not be so dependent on the US. But is that even an option for Mexico.
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.
But they're pretty shy about it.
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 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.
If you allow me.
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 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 trade agreement.
Was that far after US pressure? Do you think? What do you think was driving now?
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.
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 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 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 once it's reviewed next year.
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
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.
You CUsing off your options.
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 strump So that's the balance.
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 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.
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
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 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 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 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 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.
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, 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 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 country to attract investment.
Since near sharing was low.
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
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.
So I guess that's the key.
If she is able to attract investment, that's the only way to depend less on the US.
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 have something almost as good. Filipe and Alex, thank you so much.
Thank you, Stephanie, thank you too.
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 find the show, please rate it and review it highly wherever you listen.