As EU-Mexico trade deal nears finish line, Trump threat looms

BRUSSELS — After close to a decade of talks, the European Union is closing in on signing a trade deal with Mexico. U.S. President Donald Trump could yet sink it. 

The deal updates a previous free trade agreement from 2000, and was concluded in January 2025. Trade specialists on both sides have since been casting it in bullet-proof legal language and translating it into all of the EU’s 24 official languages. That would pave the way for a signing ceremony: a plum photo op for Commission President Ursula von der Leyen, Council President António Costa and Mexican President Claudia Sheinbaum.  

The EU-Mexico Modernized Global Agreement, as it is called, should be an easy win for both sides. It largely excludes the thorny issue of agriculture, and cements an alliance between wealthy European economies and a populous Latin American democracy with an enviable geography, straddling both the Atlantic and Pacific, and sitting just south of the U.S. border. 

But the U.S. president remains a wild card. Mexico is the U.S.’s number one trade partner. Annual trade in goods between the two countries amounts to $840 billion, 10 times Mexico’s trade with the EU. And while Trump has turned his wrath of late on northern neighbor Canada, he first rode to power on a promise to build a wall on the Mexican border. He has, since returning to the White House, imposed extra tariffs and even threatened military strikes against Mexican drug cartels.

The timing of the revision of the United States-Mexico-Canada Agreement (USMCA) — the successor of NAFTA — adds another wrinkle. The free-trade deal between the three North American countries, is up for a review at the start of July. The Trump administration has made noises that it wants major revisions — or even to sink it altogether.

Signing a deal with the EU, with all the pomp and fanfare that entails, risks antagonizing a White House that has made dominating the Western hemisphere under the “Donroe Doctrine” a strategic priority. One EU diplomat who asked to remain anonymous said that the Mexican side was slow-walking negotiations precisely for fear of U.S. retaliation.

More broadly, Trump’s trade agenda is in disarray after the U.S. Supreme Court last week struck down the sweeping tariffs he imposed last year. Trump has announced a new, temporary global tariff of 15 percent, under Section 122 of the Trade Act of 1974. For Mexico, the effective rate would be lower, at 5.2 percent, thanks in large part to the USMCA.

Bad timing 

The updated EU-Mexico agreement has had a difficult birth.

The two sides first announced that they had reached an agreement in 2018. But the change of the government in Mexico with the election of the left-nationalist Morena party, led by Andrés Manuel López Obrador, reset talks. Obrador had made state control of energy utilities a key plank of his program, requiring a new round of negotiations. But in January last year, the EU announced once again that the two sides had reached a deal.

The revised agreement clears the way for more integration of Mexico’s manufacturing-heavy economy with European industry, particularly in the automotive sector. It also paves the way for more European investment in Mexico. 

For Mexico, it would be one way to lessen its overwhelming dependency on the U.S. economy. But it’s that same dependency makes the revised deal delicate.

“The U.S. is an important variable for trade for every country, but for Mexico it’s a crucial partner,” said Renata Zilli, a researcher at think tank  European Centre for International Political Economy who is based in Mexico City.

Zilli explained that, over the past three decades, Mexico had deepened its integration in the U.S. supply chain. American businesses had taken advantage of lower salaries to open up factories south of the border which then shipped everything from car and airplane parts, to toasters and refrigerators, back to the U.S.

The end result had been respectable growth and a more industrialized economy compared with commodity-heavy South American economies. But it’s also left Mexico increasingly dependent on the U.S.

Trump has in his second term, meanwhile, amped up the hostile rhetoric, with threats of military action against drug cartels south of the border, something that would precipitate a political crisis. The capture of Venezuelan leader Nicolás Maduro by U.S. special forces has further escalated tension in the region.      

“There’s a mixed agenda on security issues, on fentanyl. This complicates a lot the trade agenda,” said Zilli. “Our priority is trying to manage the relationship with the U.S.” 

The exact timing of a signature remains unclear. One person familiar with the negotiations, and who asked to remain anonymous, says that the two sides are aiming to get a deal done by the end of June. Meanwhile, the USMCA agreement is up for revision in July.   

Juan Carlos Baker, former Mexican vice minister of trade who is now an academic specializing in international trade at the Panamerican University, said signing the modernized agreement sooner rather than later could benefit Mexico, precisely by showing the Trump administration that the country has other friends. 

“What we need to do is expand our options,” said Baker, who helped negotiate the agreement before the election of Morena. He said that he believed that there in the end, the U.S. would ratify an updated USMCA. 

“It’s just posturing,” added Baker. “We buy the most and sell them the most. If you take Mexico out of the supply chain, you take the wheel off the car.”