Mexico Faces Trade Trouble With Trump. Stocks Are Still Up.
Mexican assets, including the iShares MSCI Mexico exchange-traded fund and the peso, have been buoyant under President Sheinbaum.
The U.S. indictment of Sinaloa State Gov. Ruben Rocha Moya for drug trafficking complicates Sheinbaum’s job.
This indictment comes two months before the July 1 USMCA review, which underpins 30% of Mexico’s GDP.
President Claudia Sheinbaum has kept Mexican assets buoyant by cooperating with her neighbor President Donald Trump while staying popular at home. The iShares MSCI Mexico exchange-traded fund has climbed 14% this year, outpacing the S&P 500’s 6%. The peso has gained 4.5% against the dollar.
The U.S. administration just complicated Sheinbaum’s job at the worst possible time. On April 29, federal prosecutors indicted Sinaloa State Gov. Ruben Rocha Moya and nine associates for allegedly helping their notorious local drug cartel “import massive quantities of narcotics into the United States.”
That comes two months before the July 1 deadline to “review” the United States-Mexico-Canada Agreement on free trade, which underpins 30% of Mexico’s gross domestic product—and as the economy shrank 0.8% in the first quarter of 2026.
“Mexico will be trying to bifurcate the issues of trade and drug trafficking,” says Henry Ziemer, an associate fellow at the Center for Strategic and International Studies’ Americas Program. “The U.S. wants to bundle them together.”
Merits of the case aside, Rocha Moya, 76, is a senior figure in Sheinbaum’s Morena Party and close ally of her predecessor and mentor, Andrés Manuel López Obrador. If she extradited him to face Yankee justice, more targets would likely follow.
The Rocha Moya indictment is “just the beginning,” the Republican majority on the U.S. House Foreign Affairs Committee promised in a statement. “Sheinbaum has reached an impossible situation,” says Duncan Wood, CEO of Hurst International Consulting.
So far, Sheinbaum is “playing for time and hoping Washington gets distracted by other issues,” Ziemer says. The Mexican president has called for “irrefutable evidence” of a crime. Rocha Moya has stepped down from his post temporarily.
Time isn’t on Mexico’s side with the USMCA, though. Review talks look certain to blow through their July 1 deadline and may stalemate after that. Sheinbaum’s negotiators look ready to give ground on technical issues like increasing U.S. content thresholds for North American cars or restraining Chinese “back door” investment in Mexico.
Washington may nevertheless use narcotics flows as a pretext for leaving the trade pact in “zombie” status—still in force but requiring renewed scrutiny every year, says Thierry Larose, portfolio manager for emerging markets local debt at Vontobel Asset Management. “The Trump administration likes to maintain levels of fear and unpredictability,” he says.
The zombie USMCA specter means “risks are to the downside on macro and probably company results,” says Alejandro Fuchs, Mexico strategist for Itaú BBA. This year’s equity rally has brought average price/earnings ratios close to their historic average of 13, he notes.
Mexican fixed income looks more enticing. The peso “is showing remarkable resilience,” not least as a liquid alternative to a weakening dollar, says Gabriela Soni, head of Mexico investment strategy at UBS Global Wealth Management.
UBS sees the currency holding steady around 17.2 to the dollar by the end of this year. On that basis, 10-year bond yields north of 9% look favorable, Larose says.
Mexico comes to the USMCA table with some cards. It has become the U.S.’s top trading partner, with two-way commerce rising 4% last year to $873 billion. (The European Union is bigger as a single entity.) And industry North of the border strongly supports the pact. “Not renewing it would trigger a big uproar from the private sector,” Ziemer says.
Still, the Rocha Moya indictment increases potential volatility in assets priced for stability. Watch out.