U.S. and Mexico Push for Pre-Election Trade Deal. Automakers Could See Major Tariff Relief.
Mexico and the United States are accelerating negotiations toward a bilateral trade agreement that officials hope to reach before the midterm elections on November 3, as the breakdown of Washington’s negotiations with Canada adds urgency to talks over tariffs, automobiles and Chinese investment.
Officials on both sides see advantages to completing an interim agreement within the next eight weeks, although there is no formal deadline, according to a Reuters report citing six people in Mexico and the United States familiar with the negotiations. “We both want to reach a deal before the midterms,” one Mexico-based source told the outlet.
The potential agreement would provide Mexico with relief from some U.S. tariffs in exchange for concessions addressing priorities of President Donald Trump‘s administration, particularly the amount of U.S.-made content in vehicles manufactured in Mexico and Washington’s concerns about Chinese investment in the country.
The economic stakes are significant for Mexican President Claudia Sheinbaum as more than 80% of Mexican exports go to the United States, making access to the American market central to the country’s manufacturing sector and broader economy.
“Time is of the essence for the Mexican government,” a source told Reuters, pointing to Mexico’s weak economy and pressure on its credit ratings. Sheinbaum’s government views a trade agreement as an important signal to investors and financial markets as it rolls out its 2027 budget. Mexico’s Economy Ministry, however, emphasized that negotiations are not operating under an official election-driven timetable, telling Reuters that “there are no specific deadlines at this time.”
The negotiations have accelerated following the collapse of U.S.-Canada trade talks in August. The dispute between Washington and Ottawa has since escalated, with the United States moving to ban imports of several categories of Canadian alcohol, motorcycles and dairy products while Canada has announced retaliatory measures.
Mexico has pursued a markedly less confrontational strategy. One source characterized its approach to Reuters as “play nice and continue to cooperate,” reflecting the Sheinbaum government’s calculation that accommodation could produce better tariff terms. U.S. Commerce Secretary Howard Lutnick held a virtual meeting with Sheinbaum on Thursday.
Sheinbaum recently proposed legislation that would expand Mexico’s authority to review and potentially block foreign acquisitions of Mexican companies. The talks are being treated as an interim bilateral arrangement rather than a replacement for the U.S.-Mexico-Canada Agreement. USMCA remains in effect, but its future became less certain after the United States declined in July to renew the agreement for another 16 years.
One of the biggest obstacles involves Section 232 tariffs. Mexican and Canadian steel entering the United States currently faces tariffs of 50%, while automobiles are subject to a 25% duty. Those rates have become increasingly significant because Trump has negotiated lower automobile tariffs with several other trading partners, including 15% rates for Japan, South Korea and the European Union and 10% for Britain.
Automakers believe Mexico could eventually receive a framework similar to one discussed with Canada before those negotiations collapsed. Under that possibility, the automobile tariff could fall to 15%, with additional reductions based on U.S. content potentially bringing the effective rate to roughly 7%, Reuters reported.
Mexico, in return, could make concessions designed to increase the use of U.S.-made engines, electronics and software in vehicles assembled south of the border. The negotiations could also reshape the balance among the three North American trading partners. An auto industry source told Reuters that Washington wants to reach an agreement with Mexico before major new Canadian tariffs take effect January 1.
