Trump loses the plot, Sheinbaum plans a party

President Claudia Sheinbaum at the Zocalo in Mexico City this week. Image credit: Imago / Carlos Santiago / Alamy.

President Claudia Sheinbaum is throwing a party in Mexico City’s Zocalo this weekend. The reason? Another one-month pause on Trump’s tariffs. The event was supposed to be Mexico’s response to a 25% tariff hike. But by Thursday, after Trump first exempted auto imports, then all USMCA-compliant goods, it became a victory lap.

The official story is that Sheinbaum and Trump had a “constructive” talk. Mexico showed progress on crime and migration, and Trump, out of “respect,” gave one final extension. Cute. And helpful for Sheinbaum politically. But also, nonsense.

Notice Sheinbaum gave Trump nothing. In February, she sent 10,000 troops to the border. This time? Just some charts, a friendly tone, and zero concessions. So what changed?

The market.

The stock market started sliding after Trump’s tariff announcement. Unlike past cycles, the dollar didn’t surge - it fell, even against the peso. Deutsche Bank’s George Saravelos warned of the “potential loss of the dollar’s safe-haven status.” Taken together, that’s a flashing red light for Trump.

Trump’s hold on his base partly depends on the idea that he’s a stock market whisperer. Never mind that the S&P 500 grew more under Obama (66%) and Biden (55%) than Trump (44%). The myth holds. That’s why he rang the Wall Street opening bell in December - a rare move for a president.

But that was then. Now, the S&P 500 has erased its post-election gains. At the time of writing, it’s down nearly 5% this month, 2% this week. The peso? Up since Trump’s tariff move.

By touching the tariff stove, Trump finally spooked the markets, as was entirely predictable. But it seems to have spooked him, too. Then, for the first time in his short but frantic presidency, in announcing the rollback for USMCA-compliant goods, he looked weak. Hesitant. Sheinbaum, who barely raised her voice this week let alone a complaint against Trump - unlike Canada’s Justin Trudeau - surely noticed.

It’s a power shift. And it’s worth watching.

But the carve-out for USMCA-compliant goods raises a question: why impose blanket tariffs on USMCA countries only to backtrack two days later?

There’s a kernel of logic, if not much method. CNBC’s Megan Cassell reported that officials claim about 50% of Mexican imports don’t comply with USMCA. They’re using that to explain the USMCA carve out, arguing that the tariffs were not actually reversed, just refocused.

They’re not wrong. A 2022 Congressional report from the US Trade Representative confirms it. In the auto sector especially, companies often skip USMCA’s zero-tariff benefits. The filing requirements are onerous, and the alternative 2.5% Most Favored Nation (MFN) tariff is low enough to be worth it. They also avoid having to comply with complex USMCA rules of origin requirements. Trade Secretary Marcelo Ebrard acknowledged this today.

If the White House’s goal is to push non-compliant firms into the USMCA framework - forcing them to follow stricter rules of origin by hiking the MFN tariff - then that makes sense. That’s a reasonable trade policy.

But why not say so upfront? Why slap tariffs on everything, effectively blowing up your own trade agreement and your trustworthiness as a diplomatic partner, just to walk it all back? This isn’t “Art of the Deal.” It’s a mess. Even for Trump, it makes no sense. And it’s why markets kept sliding after his reversal. He lost control of the narrative.

It’s also why Sheinbaum didn’t have to offer him anything new to get this extension.

The most logical course of events from here suggests we should expect more sectoral tariffs in April, like that currently on steel (disruptive as they are), alongside higher general tariffs for non-USMCA compliant goods. That will lay the groundwork for a USMCA renegotiation, focusing on tightening rules of origin. It might even involve creating additional requirements about how much of a product’s component parts must originate in the US. That’s the likely destination. The soap opera? Unnecessary. Unless, of course, this isn’t really about trade for Trump but instead about a broader agenda intended to destabilize, for whatever reason, America’s historic partnerships.

That’s a conversation for another day. For now, Claudia Sheinbaum has a party to get ready for…