Tariffs and judicial chaos shake investor confidence in Mexico: ‘Everything has been put on hold’
Growing wave of uncertainty is freezing investment plans in Mexico, rattling business leaders in the US and abroad
A growing wave of uncertainty is freezing investment plans in Mexico, the US’s largest trading partner, rattling domestic and foreign business leaders alike.
Investors are weighing Donald Trump's decision to impose tariffs on August 1. The plan so far consists of levies on Mexican-made automobiles, steel, aluminum, metal parts, and tomatoes. They are also considering Mexican President Claudia Sheinbaum's initiative to reform the country's judicial system in ways that critics say undermine legal certainty and could reverse democratic gains. Not surprisingly, they are increasingly hesitant about how to proceed. Plans to start new operations in Mexico, or expand existing ones, are being quietly reconsidered, postponed, or shelved. The economic effects are increasingly affecting business and investment decisions along the U.S.-Mexico border, undermining executive confidence and the potential for job growth. Long-term planning is virtually impossible, according to business leaders and economic experts.
“Foreign investment is likely lower than it would have been at this point in the year,” said Tom Fullerton, a professor of economics and finance at the University of Texas at El Paso. “It’s still unclear whether the Trump administration will allow the United States to remain in the USMCA [United States-Mexico-Canada Agreement, the free trade agreement negotiated during Trump’s first presidency].” “It’s also unclear how the legal landscape in Mexico will change.” With many U.S. and Mexican companies closely linked, the effects of the policy changes are felt in both border regions. Bilateral trade between the United States and Mexico reached an estimated $840 billion in 2024.
Around 65,000 jobs have already been lost in Juárez alone, due to a multitude of factors, including increased factory automation, said Jerry Pacheco, president and CEO of the Border Industrial Association. "We've lost at least three deals since the steel and aluminum tariffs rose to 50% in Santa Teresa, creating an uncertain business environment," Pacheco said. "The U.S. and Mexican economies are so intertwined and dependent on each other that if U.S. companies suffer from the steel and aluminum tariffs, Mexico will suffer as well." The paralysis in decision-making threatens to severely affect Mexico's growth prospects and Sheinbaum's legacy as the country's first female president. The economy has already shown unequivocal signs of a sharp slowdown since late last year.
There's no clear recovery in sight, either at the border or beyond. "Everything is on hold," said Victor Gonzalez, owner of Solinda, a precision machinery manufacturing company based in the central Mexican state of Aguascalientes, referring to what he's hearing from colleagues and business associations. "One reason is judicial reform. The other is tariffs." Initially, Trump's sweeping threats to impose tariffs on all Mexican and Canadian imports forced business leaders to recalibrate their investment strategies south of the border. The renewed economic boom Mexico was expected to enjoy, fueled by Trump's tough stance on Chinese imports, quickly faded.
Rather than benefiting from changes in the global supply chain, both Mexico and Canada have been caught in the crossfire driven by trade. Instead of encouraging offshoring, Trump decided to use tariffs as leverage to pressure both neighbors to combat the flow of migration and drugs, particularly fentanyl. One indication of the potential impacts could be General Motors' announcement in June of a $4 billion investment in US factories in Michigan, Kansas, and Tennessee. This is in line with the company's strategy to revive its manufacturing presence in the United States, something Trump has demanded. GM revealed that the Blazer and Equinox, sport utility vehicles that have been assembled in Mexico for years, will be manufactured in plants in Tennessee and Kansas starting in 2027.
GM has manufactured vehicles in Mexico since the 1930s, and its expanded production here was touted as one of the first to achieve the U.S.-Mexico-Canada free trade agreement of the early 1990s. The automaker's decision was hailed by the Trump administration as a major victory. "No president has shown greater interest in reviving America's once-great auto industry than President Trump," White House spokesman Kush Desai said in a statement.
The U.S. government's message was clear to many observers: Mexico's loss is America's gain, even if GM must assume higher production costs, which could result in higher prices for consumers. While threats diminished throughout the year—after Canada and Mexico announced border task forces and deployed more security personnel—investor confidence has been shaken. Now, Sheinbaum has realized her predecessor's dream of radically reforming the Mexican judicial system, to the benefit of her near-hegemonic political party, Morena. A June election with low turnout—turnout was just 11%—replaced career Supreme Court judges, magistrates, and justices with elected officials.
Many fear that the consolidation of control over the courts will erode institutional checks and balances. With judgeships and other judicial positions dominated by ruling party loyalists, critics worry that arbitrary or ideological rulings could proliferate. All nine newly elected Supreme Court justices have ties to Sheinbaum, former President Andrés Manuel López Obrador, or his leftist party. "What investors are looking for is certainty and the rule of law," said Tony Garza, U.S. ambassador to Mexico during the George W. Bush administration, who now works on trade and other issues at the law firm White and Case. "What they're getting with tariff threats and judicial elections is chaos and incompetence." Many business leaders, economists, and credit rating agencies fear that the country is slipping back toward the one-party system that dominated Mexican politics for most of the 20th century. Mexican politics have been reeling since the establishment of democracy in 2000.
The judicial reform could “negatively affect investment appetite and the business environment,” Fitch Ratings warned in a report last year. This echoed similar concerns expressed by S&P Global and Moody’s, the world’s two other largest credit rating agencies. Economic hurdles are already mounting, with signs of trouble at the border. Fullerton noted that unemployment rose from 2.2% in 2022 to 3.3% in 2024. Across Mexico, with an annualized economic contraction of 2.7% in the final quarter of 2024 and weak growth of 0.8% last winter, labor and public confidence indicators also paint a worrying picture.
The private sector created just over 85,000 new jobs between January and June, or more than two-thirds fewer than in the same period the previous year. This is the lowest job creation since 2009, excluding the effects of the COVID-19 pandemic, according to the Mexican Social Security Institute. Consumer confidence in June fell to its lowest in two years, while business confidence fell for the fourteenth consecutive month, the National Institute of Statistics and Geography (INEGI) recently reported. While overall foreign direct investment (FDI) remains positive, the inflow of new capital has virtually stagnated. Of the $21.3 billion in FDI that Mexico received in the first quarter of 2025, only $1.58 billion, or 7.4%, represented new investment projects.
“The truth is, the way things are going—and with recent events like the judicial reform—many say this isn't going to be good,” added González, the factory owner. “That's more or less the general feeling. Right now, it's a perception, not yet a reality.” That new foreign investment is far below the six-year average of 29% recorded during the López Obrador administration and pales in comparison to the nearly 60% share of new capital the country recorded at the beginning of this century. In a recent meeting with business and political leaders at the Texas Lyceum, a statewide nonprofit, nonpartisan leadership organization, newly arrived U.S. Ambassador Ron Johnson was put on the spot with the following question: What is the “purpose” of Trump's tariffs? After a long pause, Johnson responded: Trump “is a businessman,” he said.
In the state of Texas alone, trade with Mexico will reach $540 billion in 2024. "I sincerely believe that... he just wants things to be fair and reciprocal," said Johnson, who declared himself a "good friend" of the president. "He wants competition to exist on a level playing field." Amid an awkward silence, the moderator intervened to thank the ambassador. Polite applause followed.
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