Like China, a Mexico Tariffs Own Goal: US Dependence on Mexico Energy Trade Means “Those Tariffs Never Stood a Chance”?

Yves here. The Anglosphere press has noticed that the US is in more than a small pickle with respect to its tariffs on China and its stalled (per Treasury Secretary Bessent) negotiations on a trade deal. As we’ll see below, Trump has a less acute but similar set of problems with Mexico due to the level of bilateral energy trade.

As is typical for Trump, he didn’t understand what he’d agreed to with the China retreat on his Liberation Day tariffs. China agreed to end the suspension of rare earths shipments to the US. Apparently the resumption of that trade has been slower than the US wants, which could be China slow-walking to make a point or could be bureaucratic problems as China claims. Contra Trump’s fantasies, you can’t turn these procedures off and on like a water tap.

However, what was lost on Trump and his team of amateurs was that China agreed to resume rare earths shipments only with respect to the US, and made no commitments regarding US multinationals’ operations abroad or foreign suppliers of intermediate products to the US. We featured this tweetstorm in Links earlier but it is worth revisiting:

2. Which means that the loopholes of buying through South Korea and Japan is finally closed. Now they are desperate, my guess is this export control has started taking their toll on the US and their stockpiles is critically low. It’s actually amazing when you think about it…

— Miss Li (@MissQuanyi18) June 2, 2025

4. China has decided to permanently hamper 🇺🇲 advanced weaponry production. This is of fundamental importance. To me, this rare earth magnet export ban is so important that I wouldn’t give it up even for EUV lithography. Hagseth said yesterday that the US will defend Taiwan…

— Miss Li (@MissQuanyi18) June 2, 2025

6. Processing facilities. China already mastered the tech behind making magnets for EV motors that can operate at 200C. The west are at least a decade behind China is processing technology… pic.twitter.com/FLaaJg2A03

— Miss Li (@MissQuanyi18) June 2, 2025

No wonder Trump is whinging that it is tough to negotiate with Xi. Why should he when the US has been threatening loudly in public that China is the US’ biggest geostrategic threat and our military needs to “pivot” to the East to cut them down to size?

More own goals with respect to China:

Trump made an insane blunder that has driven countries around the world into the arms of the Chinese. Trump has destroyed trade relationships, and China has stepped in and left the US out in the cold. Xi doesn’t need deals with the US, he has deals around the world that Trump…

— Alex Cole (@acnewsitics) June 4, 2025

There is a very decent chance that Ford and General Motors are going to have to open brand new factories in *China* as a result of Trump’s trade war.

SNL couldn’t write a script this ridiculous at this point. pic.twitter.com/gxUmmeYkrO

— Spencer Hakimian (@SpencerHakimian) June 4, 2025

Now to the Mexico energy trade part of the equation.

By Haley Zaremba, a writer and journalist based in Mexico City. Originally published at OilPrice

• The United States and Mexico have a vital energy trade relationship, with U.S. natural gas exports to Mexico increasing dramatically in recent decades, creating a high level of economic interdependence.
• Experts argue that the energy trade between the U.S. and Mexico is so crucial for both nations’ economies that it may be largely shielded from tariff threats, which are possibly being used for diplomatic leverage.
• The U.S. strategy of near-shoring its energy supply chains heavily involves Mexico, making the maintenance of good relations between the two countries’ leaders essential for both nations’ economic and energy goals.

Tariff whiplash under the Trump administration has raised a lot of concerns about the United States’ relationship with its first- and second-largest trading partners, Canada and Mexico. This is especially true for energy trade, which all members of the United States-Mexico-Canada Agreement (USMCA) depend on to keep their economies healthy. Experts contend that recognizing the vital role of energy trade for all parties, and strengthening those relationships, is critical in these volatile times.

While this is true for all of North America, it is particularly true of the energy trade relationship between the United States and Mexico, which has massively expanded in recent decades. In January of this year, pipeline exports of natural gas from the United States to Mexico reached a whopping 199.2 billion cubic feet. That marks a more-than ten-fold increase since 2012, and a nearly 200-fold increase since 1990. This rapid growth has made the two economies more inextricably interlinked than ever before.

Because of the scale and rapid expansion of this relationship, the United States and Mexico both need a healthy energy trade relationship for their respective economic well being, according to experts. “For Mexico, reliable access to competitively priced U.S. energy is essential to sustaining economic growth, enabling industrial competitiveness and stabilizing the electric grid,” states a recent opinion piece from The Hill, written by Duncan Wood. “At the same time, for the U.S., Mexico has become an indispensable customer, so much so that any downturn in Mexican demand would ripple through U.S. refineries, gas producers and the infrastructure companies that have built pipelines and terminals to serve the southern market,” Wood continues.

This means that tariffs could pose a major threat to what is a foundational piece of the continental trade agreement and economy. But it could also mean that the tariffs never really stood a chance. In April of this year, Carlos Guadarrama, a senior energy consultant at the World Bank, said that energy trade between the two countries is so integrated and important that it is essentially shielded from tariffs, and implied that Trump’s tariff rope-a-dope with Mexico is founded on empty threats.

“I don’t think the tariffs will impact bilateral energy trade because at this point, we’ve seen the U.S. threaten tariffs on Mexico several times,” Guadarrama told Natural Gas Intelligence. “I think Trump is using the tariffs as a threatening mechanism so that the Mexican government complies with the U.S. on other requests and areas of interest beyond energy, and I personally don’t think they will have any effect in bilateral trade when it comes to energy,” he went on to say.

This means that the two new presidents of the United States and Mexico, Donald Trump and Claudia Sheinbaum, will need to maintain good relations and a high level of diplomacy if the United States wants to keep making money off of Mexico’s grid, and Mexico wants to keep growing its own economy using relatively cheap and abundant American energy imports.

What is more, maintaining energy trade relations with Mexico is paramount to the United States’ own energy strategy, which is moving away from global supply chains and toward friend-shoring and near-shoring. Around this time last year, the Atlantic Council reported that cooperation between the two new regimes in the United States and Mexico would be critical for loosening trade reliance on China. The United States’ plans for nearshoring its energy supply chains – moving their lines of production closer to home – feature Mexico prominently.

At that time, when the potential outcome of the United States election was still the subject of much debate, the Atlantic Council advised that “The United States should seize the opportunity to work with the incoming Sheinbaum administration to strengthen the Mexican energy sector, thereby enabling supply chain security gains through nearshoring.” So far, Trump has worked against Mexico as much as with them. But with such complementary mutually beneficial energy market needs, he may just be blowing smoke.