National Interest

by Robert C. O’Brien

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    Mexico is a key supplier and buyer for the US steel, automotive and energy sectors.

    For decades, American policymakers treated trade with Mexico as a tool to support that nation’s economy and create opportunities for Mexicans at home. That era is over. Likewise, America cannot rebuild its industrial strength by now treating Mexico only as a competitor. Mexico can and should be viewed as a partner in economic security for a reinvigorated America.

    As Washington seeks to reshore manufacturing, secure critical supply chains and achieve energy dominance to safeguard our national security, Mexico can be part of that program. A stronger US industrial base will benefit from a strong North American industrial base, which increasingly means Mexico.

    President Donald Trump’s tariffs have put rebuilding American industry at the center of US trade policy by strengthening domestic steel and auto production. This approach can be strengthened by distinguishing integrated North American production from imports from outside the region, targeting the primary source of unfair trade the United States must counter: non-market producers like China.

    The Section 232 tariffs on Mexican steel illustrate why that distinction matters. The tariffs were intended to rebuild US steelmaking capacity and protect an industry critical to national security. But tariffs on Mexican steel have not reduced Asian suppliers’ competitive position and risk weakening an integrated North American steel market. Between the first half of 2024 and 2026, Mexico’s share of US steel imports fell from 11 percent to 9 percent, while Asia’s increased significantly.

    Most importantly, Mexico is the leading export market for US steel and the United States runs a trade surplus with Mexico in this product. Steel moves across the border through integrated supply chains that support American energy, infrastructure, defense and advanced manufacturing. The central strategic challenge, therefore, is not US-Mexico steel trade, but competition from heavily subsidized producers operating under non-market conditions.

    The automotive industry is another example of US-Mexican industrial alignment. Unlike many foreign suppliers, USMCA vehicles must meet stringent regional value content, labor, steel, aluminum and wage requirements—embedding US workers, materials and suppliers throughout North American production. Yet, between the first half of 2024 and 2026, Asia’s share of US passenger-vehicle and light-truck imports, by vehicle count, rose while the USMCA region’s share fell. Recent agreements that lower Section 232 automotive tariffs on imports from the region to 15 percent risk narrowing the competitive advantage of North American production, even though those imports face no comparable US-content requirements.

    Industrial integration also has an important energy focus. President Trump’s energy dominance agenda depends on abundant, affordable steel supplies for drilling equipment, pipelines, electrical transmission systems, LNG infrastructure and other critical energy assets. Lowering these input costs can improve America’s ability to expand domestic energy production, modernize the electric grid, strengthen critical infrastructure and compete in global energy markets. The same will be true in Mexico, especially for new oil and gas exploration.

    This is precisely the kind of industrial integration US policy should encourage: North American supply chains that support domestic manufacturing, investment and energy production rather than displace them. The United States uses Mexican-manufactured steel to build higher-value equipment that supports American energy, infrastructure and advanced manufacturing.

    None of this means giving Mexico unconditional preferential treatment. Deeper integration must come with stricter regional rules of origin, customs enforcement, investment screening and safeguards against non-market content, circumvention, transshipment and unfair trade, with a reasonable transition period. Mexico is already taking steps in this direction through Plan Mexico, stronger trade enforcement and policies designed to strengthen regional supply chains. Its cooperation with Washington on difficult bilateral issues also demonstrates a willingness to address US concerns. Indeed, Mexico has shown far greater consideration for American concerns here than other formerly close partners.

    This year’s USMCA review provides an opportunity to create the right balance. In steel, US policy should strengthen an integrated North American industry while directing its strongest trade defenses against the non-market competition that threatens it. In autos, it should recognize the American workers, materials and investment already embedded in USMCA production and keep North America an inhospitable destination for the dumping of Chinese cars. In energy, it should avoid unnecessarily raising the cost of industrial inputs needed to expand American production while strengthening Mexican energy production.

    The lesson across all three sectors is the same: tariffs meant to rebuild American industry should not inadvertently weaken the North American supply chains that sustain our revitalized, manufacturing—and energy-anchored economy. A modernized US-Mexican partnership, hopefully grounded in a “Fortress America” USMCA, should reward genuine regional production while strengthening rules of origin and defenses against non-market competitors.