Sources: US and Mexico race to finalize bilateral trade deal before US midterm elections

MEXICO CITY/WASHINGTON, Sept 11 (Reuters) — Mexico and the United States are racing to reach a bilateral trade agreement before the US midterm elections, which are less than eight weeks away, according to six sources in both countries familiar with the negotiations. The collapse of Canada's talks with Washington has made this effort more urgent.

"We all want a deal before the midterms," said one Mexican source, who spoke on condition of anonymity because the discussions were private.

Key Objectives

The negotiations aim to reach an interim bilateral agreement that would:

• Allow Mexico to secure partial relief from US tariffs
• Address American demands regarding local content requirements for vehicles
• Address American concerns about Chinese investment

Political and Economic Pressures

Although there is no formal deadline, officials from both countries believe reaching a deal before the November 3 election carries political benefits, as President Trump's Republican Party risks losing control of Congress.

"Time is critical for the Mexican government," the Mexican source said, citing concerns over economic weakness and credit rating downgrades. The source added that President Claudia Sheinbaum's administration submitted its 2027 budget this week, viewing a US trade deal as essential to reassuring markets and investors.

Official Statements

A spokesperson for Mexico's Economy Ministry stated: "There is currently no specific deadline," emphasizing the government's commitment to ongoing dialogue with Washington.

The US Trade Representative and the White House did not immediately respond to requests for comment.

Impact of US-Canada Breakdown

Mexico's push follows the breakdown of US-Canada trade talks last month, which plunged long-time allies into a fierce tariff dispute. On Tuesday, Washington banned imports of a wide range of Canadian alcohol, motorcycles, and dairy products, while Ottawa vowed to impose reciprocal tariffs.

The failure of negotiations with Canada has reinforced Mexico's strategy of avoiding direct confrontation with Washington. Mexican sources described their approach as "cooperating well." More than 80% of Mexico's exports go to its northern neighbor.

Recent Diplomatic Engagement

US Commerce Secretary Howard Lutnick held a video conference with Sheinbaum on Thursday regarding trade issues. The meeting was originally scheduled to be held in person and took place less than two weeks after Sheinbaum proposed legislation granting the government new powers to review and block foreign acquisitions of Mexican companies.

This measure would establish an investment review system similar to those in the US and Canada, widely seen as a response to US demands for stricter scrutiny of Chinese investment.

USMCA Context

The US-Mexico negotiations aim to reach an interim bilateral agreement while also addressing issues related to the trilateral USMCA pact, which includes Canada. The pact fell into uncertainty after the US declined to renew it in July, 16 years after its inception; it remains in effect but is subject to annual reviews.

Mexican and Canadian officials have publicly emphasized maintaining the trilateral agreement, but some Mexican officials privately believe Mexico should not sacrifice its own interests for Canada's sake. An automotive industry source said the Trump administration aims to isolate Ottawa by reaching a deal with Mexico before new Canadian tariffs take effect on January 1.

Potential Benefits and Obstacles

A US-Mexico deal could also lower prices for US consumers, providing a "political win" for the Trump administration, according to North American trade expert Diego Marroquin Bittar: "They can argue it is Canada's fault."

The main obstacle is Section 232 tariffs, with:

• 50% tariffs on steel from Mexico and Canada
• 25% tariffs on vehicles

Trump has already negotiated reduced auto tariffs for other partners, including:

• 15% for Japan, the European Union, and South Korea
• 10% for the UK

Possible Framework

Before the breakdown in talks, Canada appeared close to achieving a breakthrough with Washington on Section 232 tariffs. Several automakers believe Washington may ultimately offer Mexico the same framework discussed with Canada: a 15% import tariff on vehicles, plus additional reductions based on US content, resulting in an effective rate of approximately 7%.

In return, Mexico is expected to make concessions on increasing US content in vehicles, particularly regarding engines, electronics, and software, as demanded by the US. While Mexico opposes explicit US content requirements, "this does not mean it will not work to help increase US content," the source said, noting that the form of the final compromise is a "big question."

Source: Reuters