World trade

Protecting from Protectionists: Building bridges between Mexico and Europe

Even ahead of his upcoming inauguration, the President-elect Donald Trump proposed a 25% blanket tariffs for his border-sharing neighbors, unless they curb migration and illicit trade flows – a move that sent shockwaves through the global economic landscape. While the US-Mexico-Canada Trade Agreement (USMCA) renegotiation was one of the cornerstone of the first Trump presidency, the proposals circulated on Truth Social could endanger North American trade relations all together.

The looming specter of heightened protectionism under President-elect Donald Trump’s administration has reignited debates over the future of global trade. Trump’s proposal of a 25% blanket tariff on goods from Canada, Mexico, and over 100% on BRICS countries threatens to disrupt established supply chains, inflate costs for American consumers, and escalate geopolitical tensions.

Friendshoring: Rethinking Global Trade Dynamics

The United States – Mexico – Canada Agreement (USMCA) has catalyzed Mexico’s evolution into a key supplier of industrial, automotive, and electronic goods for the U.S. This shift has been amplified by the decoupling of U.S.-China trade ties, with Mexico surpassing China in 2023 as the leading supplier of goods to the American market. Trump’s protectionist agenda inadvertently highlights a transformative shift away from US-led free trade, but those affected by it should see it as a new opportunity to rethink global trade structures through friendshoring.

Friendshoring emphasizes relocating supply chains to nations with shared values, political stability, and institutional reliability. In this context, Mexico emerges as a pivotal partner for Europe, offering unique opportunities to reconfigure trade dynamics amidst global geopolitical challenges. A recent policy paper by the Friedrich Naumann Foundation for Freedom delves into the potential of this partnership, particularly in light of the US-China trade decoupling and Mexico’s growing role in North American supply chains.

The policy paper “Friendshoring with the USMCA Region: Opportunities for the Relationship between Europe and Mexico”, outlines how Mexico’s geographical and trade advantages, combined with its integration in multiple trade agreements, position it as a linchpin in building resilient supply chains. The analysis underscores that Mexico has already made significant strides in replacing China as the United States’ primary supplier of goods in critical sectors like automotive components, medical equipment, and electronics. For example within automotive manufacturing, between 2018 and 2024, Mexico increased its share of U.S. transportation equipment imports from 29 percent to 34 percent. This shift underscores Mexico’s strategic value for European companies looking to reduce their reliance on Asia while accessing the vast North American market.

Unlike traditional offshoring, which prioritized cost efficiencies by outsourcing to low-wage economies, friendshoring seeks to establish trade relationships with countries that share common economic and political principles. This is especially relevant in the Mexico-EU relationship and can help to minimize the risks of global disruptions, making it particularly relevant in today’s volatile trade environment. Mexico’s deep integration into North American markets through USMCA and its recently-updated and robust trade agreements with the European Union make it an ideal partner for reshaping global trade networks. By leveraging Mexico’s proximity to the U.S and its growing industrial capacity, Europe can strengthen its presence in North America while diversifying its supply chains.

Trump’s Tariff Threats might offer untapped potential

The report also highlights challenges. While Mexico has capitalized on the U.S.-China decoupling in sectors like automotive manufacturing, it has yet to fully tap into opportunities in industries such as electronics, pharmaceuticals, and green technologies. European expertise and investment in these areas could bridge this gap, enhancing Mexico’s capacity to serve as a robust alternative to Asian supply chains. By aligning production processes with the USMCA’s regional content and labor standards, European companies could seamlessly integrate into the North American market while meeting stringent sustainability requirements. By establishing frameworks like a Mexico-EU Strategic Cooperation Council to foster skilled labor development in priority sectors, and invest in small and medium-sized enterprises, it becomes obvious that there is ample potential for mutual benefit.

Trump’s tariff proposals highlight the fragility of the global trade system, but they also underscore the urgency of pursuing value-driven trade alliances. The 2020 modernized EU-Mexico Global Agreement should be ratified swiftly. It offers liberalized trade for 99% of all goods traded between the EU and Mexico and, can be part of a compelling roadmap on how to trump Trump’s trade policy.

Building Bridges, Not Barriers: The Road Ahead

The global trade landscape stands at a crossroads. Trump’s protectionist agenda might destabilize traditional trade alliances, but it also presents an opportunity to rethink and reconfigure partnerships. Mexico and Europe can lead the way in constructing a trade model that emphasizes shared values, economic security, and mutual prosperity.

The future of trade lies not in isolation but in building bridges. Mexico’s unique position as a trade gateway to North America, coupled with Europe’s innovative capacity, can redefine global trade dynamics. Fostering resilient and strategic collaboration will determine the future of trade—and perhaps even the trajectory of global economic stability.