Key Takeaways:
Claudia Sheinbaum aims to continue her predecessor’s agenda, focusing on eradicating corruption, reducing the wealth gap, and enhancing Mexican industry.
Sheinbaum inherits a significant fiscal deficit (5.4% of GDP) and declining growth projections, which combined with investor uncertainty, could hinder foreign direct investment and economic stability in Mexico.
Sheinbaum continues to support state-owned PEMEX and CFE, while encouraging private investment in renewable energy as part of her broader energy sovereignty policy.
Tensions with the US could arise during upcoming USMCA renegotiations, particularly over Chinese investment in Mexico and constitutional reforms affecting trade agreements and investor confidence.
On 1st October 2024, Dr. Claudia Sheinbaum was sworn in as Mexico’s first female president after winning a landslide victory in the Mexican general election on 2nd June. The President is part of the Movimiento Regeneración Nacional (Morena) party, which has governed the country for the past 6 years under President Andrés Manuel López Obrador (AMLO). In the election, Sheinbaum achieved 59.4% of the vote, winning by the greatest margin in Mexican history. This landslide victory has led to a supermajority in the Chamber of Deputies for the left-wing coalition comprised of Morena, the Partido del Trabajo (PT), and Partido Verde Ecologista de México (PVEM). The coalition also falls just one seat short of a supermajority in the Senate.
Sheinbaum’s near-supermajority allows for the rapid enactment of reforms without effective opposition, impacting trade agreements, private investment, foreign relations, and national security measures.
Constitutional Reforms
Sheinbaum’s election was based on her manifesto, ‘100 Steps to Transformation’. Her policies support and build on López Obrador’s ‘Fourth Transformation’, which centres around eradicating corruption, reducing the wealth gap, establishing a welfare state, and improving Mexican industry. In February 2024, former President López Obrador introduced 17 constitutional reforms to advance his transformation goals, which Shienbaum publicly supported and reiterated in her manifesto.
Despite Sheinbaum’s official inauguration on October 1st, Congress began its session on September 1st, 2024, with López Obrador still in office. This allowed him to leverage Sheinbaum’s supermajority to pass critical reforms, including:
Allowing the direct election of judges
Transferring command of the National Guard to the military under the Ministry of Defence (SEDENA)
Dismantling seven autonomous regulatory agencies.
The recent constitutional reforms have drawn increasing criticism from political opposition, private companies and the US, judging judicial reforms as ‘a major risk to the functioning of Mexico’s democracy’ that could disrupt North American economic integration.
Uncertainty surrounding the increasing centralisation of power within the executive branch as well as fears of diminishing democratic checks and balances have negatively affected Mexico’s investment market. Following Sheinbaum’s election, Mexican stocks fell over 6% and the peso closed at its weakest to the dollar since November of 2023. Several members of Congress have written to US Secretary of State, Anthony Blinken, highlighting how constitutional reforms ‘circumvent current USMCA agreements, undermine investor confidence in Mexico’s legal framework, weaken North American economic integration, and create a system where we [the US] cannot rely on Mexico to adjudicate and enforce its trade obligations’. In spite of the negative reaction to the reforms, Sheinbaum has reiterated that she will continue to support them throughout her presidency,
Foreign Direct Investment and Trade
In her manifesto, Sheinbaum highlighted her plans to use Mexico’s membership of the United States–Mexico–Canada Agreement (USMCA) to encourage foreign investment and ‘help national development’. These measures include:
Investing in twelve industrial parks in southeastern Mexico.
Developing ten additional ‘Development Poles’ by enhancing transportation links and customs processes.
Capitalising on nearshoring trends to replace imports primarily from Asia with regional production from North America.
Mexico is the second largest recipient of Foreign Direct Investment (FDI) in the Latin American region behind Brazil, receiving over $36 billion USD in 2023. The United States is the greatest source of foreign direct investment (FDI) in Mexico, accounting for 37.8% of the total FDI flows to Mexico in 2023. The USA also accounts for 83% of Mexican exports, and 40.7% of Mexican imports. In 2023, Mexico replaced China as the US’ largest trading partner, benefiting from US nearshoring policies and North American market access through the USMCA.
Although Mexico replaced China as the USA’s largest trading partner, Chinese FDI has been steadily increasing in Mexico since 2014, and significantly increased following the onset of China’s trade war with the USA in 2018.
In December 2023, following the increase in Chinese investments, the USA and Mexico signed a Memorandum of Intent (MOI) to reaffirm the ‘importance of foreign investment screening’ and ‘work together to guard against foreign investments that pose national security risks’. The issue has also become a topic in Donald Trump’s presidential campaign, with the former President stating that he would impose a 100% tariff on cars built in Chinese-owned ‘big monster car manufacturing plants’ in Mexico.
Manufacturers in the automotive industry, such as Robert Bosch (Germany), Toyota Motor (Japan) and Volkswagen (Germany), have also chosen to invest in Mexico, largely due its proximity to the United States, relatively low labour costs, and North American market access under the USMCA.
Economy
By the end of 2024, Sheinbaum is expected to inherit a fiscal deficit of 5.4% of GDP, the largest in the past 36 years. This follows increasing public spending by the AMLO administration, which rose 30% in real terms, including three times higher cash transfers. During her campaign, Sheinbaum promised to maintain López Obrador’s social spending without increasing taxes or incurring new debt, stating that ‘public investment is a trigger for prosperity’. However, growth is declining in Mexico. In August 2024, the central bank in Mexico reduced its annual GDP growth projections from 2.8% to 1.5%, with 2025 projections being reduced to 1.2%.
Despite indicating that she wishes to maintain AMLO’s levels of public spending, Sheinbaum has ruled out raising taxes, instead indicating that she will cover spending through improving the efficiency of tax collection and clamping down on tax evasion. The manifesto states that this will lower the fiscal deficit to 2.6% by 2025, and keep higher public spending within the fiscal budget.
Energy and PEMEX
Throughout her campaign, Sheinbaum emphasised her commitment to continuing López Obrador's policy of energy sovereignty. Her manifesto highlights plans to strengthen state-owned enterprises Petróleos Mexicanos (PEMEX) and the Comisión Federal de Electricidad (CFE). Both firms are currently favoured over private enterprises in their respective markets following a 2021 amendment to regulatory laws. Despite PEMEX generating $101.64 billion USD in revenue, it remains one of the most indebted oil companies globally, with production in decline at just over 1.7 million barrels per day. Sheinbaum has ruled out privatisation, reaffirming that PEMEX ‘belongs to all Mexicans,’ and is key in defending Mexico’s energy sovereignty.
Sheinbaum’s ‘100 Steps to Transformation’ commits to continuing state support for PEMEX and CFE while promoting long-term energy sustainability, expanding clean energy, and reducing Mexico's reliance on fossil fuels. In the document, she highlights how CFE will continue to be guaranteed a 54% stake in Mexico’s electricity supply, primarily through renewable sources. Sheinbaum has also committed to maintaining existing PEMEX refineries, including the new Dos Bocas refinery.
Despite offering continuity in terms of her nationalistic approach, Sheinbaum has indicated divergence from AMLO through emphasising the promotion and development of renewable energy through private investment, especially in solar and wind power.
Foreign Policy and Migration
Sheinbaum's foreign policy aligns closely with Mexico’s long standing Estrada Doctrine, which emphasises non-intervention, peaceful conflict resolution, and national self-determination. In her 2024 manifesto, Sheinbaum reinforced this commitment, emphasising that Mexico will collaborate with the US, but reject any indications of ‘subordination’.
Mexico remains a key partner to the US in managing migration, and has faced increasing challenges due to large migration flows. Consequently, Sheinbaum also indicated that she will solidify Mexico's leadership role in addressing critical regional issues such as security, health, and migration, enhancing Mexico’s presence in international forums. Through this, she seeks to promote regional welfare and stability, ensuring that Mexico plays an active role in shaping migration policies and contributing to global solutions.
Security
During her time as mayor of Mexico City, Sheinbaum demonstrated a successful approach to public security by reducing homicides by half and high-impact crime by 60%. In her manifesto, Sheinbaum has outlined a security strategy focused on addressing root causes, enhancing intelligence, and reducing impunity. Her plans include bolstering the National Guard’s (GN) capabilities for road surveillance and integrating the GN with the broader security system. She aims to consolidate investigative capacities and improve coordination between the National Guard, state police, and federal institutions like the Attorney General's Office (FGR). By deepening Mexico's social programs and scaling up initiatives such as Jóvenes Unen al Barrio, she seeks to prevent crime at its roots.
To further tackle organised crime, Sheinbaum emphasises the importance for stronger binational cooperation with the US.
Forward Look
1 - Domestic Implications
KSG assesses that it is highly likely that Claudia Sheinbaum will be a president of continuity in several policy areas, supporting constitutional reforms, social welfare programmes, and a foreign policy stance of non-intervention and autonomy. However, it is unlikely that she will be able to continue social spending in the same unrestrained way as her predecessor due to fiscal restraints and Mexico’s decline in economic growth. Restricted budget for social spending may lead her to prioritise certain programmes, making it likely that US interests of security and migration will influence Sheinbaum’s decision-making due to its importance in Mexican trade. However, Morena’s huge congressional majority may enable her to push through rapid reforms without opposition or regard for investor priorities. Especially given AMLO’s high approval rate amongst beneficiaries of social spending, it is possible that Sheinbaum might prioritise social spending even in the face of fiscal constraints to maintain popularity. Prioritising social spending over fiscal reforms may lead to inflation, currency devaluation, or reduced spending in other areas critical for investment, especially regarding green technology or renewables.
It is unlikely that Sheinbaum’s fiscal plans will lower the deficit by half, as outlined in her manifesto. Morena’s constitutional reforms have destabilised Mexico’s investment environment and introduced uncertainty amongst foreign investors. Consequently, it will likely be difficult to attract significant foreign capital to the country, even considering Mexico’s position as a regional leader in FDI. If the fiscal deficit, low economic growth, and constitutional reforms continue, foreign investors may be forced to overlook Mexico for other destinations in Latin America which offer a more secure and stable investment environment, such as Chile, Peru or Brazil.
KSG also notes that Mexico will likely experience democratic backsliding under Sheinbaum due to the concentration of power in the executive branch. Although complete regime change is extremely unlikely, the absorption of independent technical institutions into ministries and the weakening of judicial oversight, raise concerns about checks and balances in the incoming administration. This sets a precedent that raises concerns that Sheinbaum may further entrench these practices, diminishing the role of other branches of government. The absorption of independent technical institutions into various ministries can lead to politicisation and a loss of impartiality in crucial areas such as energy regulation, environmental protection, and public health. This shift diminishes the ability of these institutions to operate free from political influence, potentially impacting the enforcement of contracts, investor protections, or dispute resolution.
2 - Energy
The domestic economic environment may also continue to cause issues in Mexico’s energy sector. If Sheinbaum fails to stabilise PEMEX and bring in new investments, the company’s contribution to the economy could decline significantly. Whilst KSG assesses that it is unlikely that PEMEX will be privatised, and Sheinbaum has made no indications to open up the energy market to foreign investments, it is likely that she will look for private investment to carry out her development plans for renewable energy. This could offer significant opportunities for private companies to gain a foothold in Mexico’s energy market, which has been inward-focused since 2018.
3 - USMCA Renegotiations
The upcoming 2026 renegotiations of the US-Mexico-Canada Agreement (USMCA) are poised to be a significant point of contention, particularly in light of shifting geopolitical dynamics and economic conditions in Mexico. The US is likely to exert pressure to enforce stricter rules on labour standards and environmental protections. It is highly likely that the US will push for greater scrutiny of Chinese investments in Mexico, especially in key sectors such as automotive manufacturing and technology. Given Mexico’s reliance on the US as its largest trading partner, it is therefore highly likely that Mexico will seek to distance itself from Chinese investments and FDI in order to maintain strong ties with the US.
Mexico’s economy is heavily reliant on the United States, both as a trading partner and a source of foreign direct investment (FDI). In the event of an economic downturn, this dependence could become a double-edged sword. A weakened Mexican economy may limit its bargaining power in the renegotiations, making it more susceptible to US demands. The government might prioritise maintaining access to the US market over pushing back against US demands regarding labour and environmental standards.
Should economic conditions deteriorate, Mexico may need to reassess its approach to Chinese investments. While distancing from China could be politically expedient to maintain strong ties with the US, it also raises concerns about Mexico’s capacity to attract the necessary FDI to spur economic growth. A cautious approach might involve limiting new Chinese investments while managing existing ones, ensuring that Mexico does not completely alienate a significant economic partner.
4 - US Election
Sheinbaum’s commitment to addressing the root causes of migration, violence and organised crime aligns with Kamala Harris’ foreign policy approach. It is likely that if the Democratic party wins the upcoming US election, there will be closer collaboration with a Democratic US government regarding joint initiatives aimed at enhancing economic opportunities in Central America and Mexico. By investing in social programs, education, and economic development, her administration could aim to reduce the need for people to migrate to the United States. Given Mexico’s difficult fiscal situation, it is likely that Sheinbaum will not be able to contribute sufficient funds to finance these programmes. This could cause tensions between both governments, as the US may be expected to front a larger budget for foreign aid and social programmes compared to its neighbour. Despite alignment on migration, Mexican constitutional reforms are likely to cause tensions between the Harris and Sheinbaum administrations due to their undemocratic implications. These reforms might raise concerns among US policymakers regarding the rule of law and human rights, potentially undermining the partnership.
If Donald Trump wins the 2024 US elections, US-Mexico relations could face significant strain, particularly in the areas of migration and national security. Trump’s historical approach to Mexico, characterised by assertive diplomacy, stringent border policies, and a focus on economic protectionism, may exacerbate existing tensions. Trump’s previous tenure was marked by a series of policies towards Mexico that caused tension, including threats of tariffs, the insistence on building a border wall, and a stringent approach to immigration. This history raises concerns about the potential re-emergence of similar tactics, which could destabilise diplomatic relations and provoke hostility from Mexico, especially given the Estrada Doctrine. Under a Trump administration, the US may pursue stricter immigration controls, including mass deportations and heightened enforcement measures. This stance could result in increased tensions at the border.
In addition, Trump's willingness to impose tariffs as a negotiation tactic could disrupt trade relations, impacting Mexico's economy and its ability to manage migration flows. This will be especially relevant considering the rise in Chinese investment in Mexico, specifically in the manufacturing sector. It is likely that Trump will continue to view and target Mexico as China’s ‘backdoor’ to accessing the US market. KSG assesses that a Trump administration will attempt to heavily regulate and penalise Chinese investment in upcoming USMCA negotiations.
A deteriorating relationship with the US may also create domestic political challenges for Sheinbaum as she navigates public expectations for security and economic stability. Any perception of weakness in negotiations with the US will likely erode her support among the Mexican populace, especially if economic conditions worsen.
Despite these challenges, Sheinbaum’s foreign policy is likely to be pragmatic and non-confrontational. While tensions with the US, especially in relation to the judiciary and security policies, are likely to emerge, Mexico’s structural relationship with Washington—rooted in strong economic, trade, and institutional ties—means that these tensions will likely be short-term, compartmentalised, and managed.