GRAND RAPIDS, MICHIGAN – NOVEMBER 05: Republican presidential nominee, former U.S. President Donald … [+]
There was a time when trade between the United States and Mexico was mostly about trade. Issues such as migration, drugs, or relations with China were relevant, but rarely shaped decisions on tariffs between both countries. Even after President Bill Clinton tied his support for NAFTA to Mexico’s commitments on environmental and labor policies in the 1990s, trade policies remained largely insulated from non-economic disputes.
This tacit understanding changed in 2019. President Donald Trump threatened to close the border unless the Mexican government curtailed illegal immigration, and he announced an escalation of tariffs of up to 25% on imports of all goods from Mexico if the flow of drugs didn’t stop. And, as he prepares for his second term, President Trump has once again tied market access to immigration, pledging a 25% tariff on all imports from Mexico -and now Canada.
It’s unclear whether the proposed Trump tariff would apply to energy. According to a November 2024 Reuters report citing “two sources familiar with Trump’s plans,” crude oil would not be exempted, but some analysts believe–or hope– this will not materialize given the significant costs to U.S. and Mexican consumers. Industry groups like the American Fuel and Petrochemical Manufacturers issued public statements warning that energy tariffs would be costly and disruptive to the U.S. oil industry, a view shared by the American Petroleum Institute.
Pemex Exports Decline as Mexico Braces for Potential Tariffs
Mexico’s imports of petroleum products and natural gas outpaced exports of crude oil starting in 2015. Declining production, an aging refinery system and expanding power demand –driven by the addition of combined-cycle power plants for cleaner, cheaper electricity– have created a structural dependency with few if any short-term alternatives.
On average, Mexican crude exports to the U.S. reached 733 thousand barrels per day in 2023, according to the U.S. Energy Information Administration, while Mexico imported 1.2 million barrels per day of U.S. petroleum products and 6.8 billion cubic feet per day of natural gas. Total U.S.-Mexico energy trade that year was worth nearly $70 billion.
If the incoming Trump administration imposed a tariff on Mexican crude oil, Mexico’s state-owned company, Pemex, might speed up its strategy to diversify export markets given the growing competition from U.S. and Canadian producers of unconventional oil. Two decades ago, Pemex exported 1.9 million barrels per day, with nearly 80% going to North America and the rest to Europe and Asia. By 2023, its exports had dropped to 1 mmbpd while Europe and Asia’s share climbed to 30%. Pemex’s data from October 2024 points to an increase in the share of sales outside North America approaching 50%.
This strategy hinges on whether Pemex can sustain surplus production. Its new Olmeca refineryexpected to reach full operation in 2026, will consume more domestic crude. And should Pemex significantly improve the efficiency of its six older refineries, its output may barely cover domestic demand and provide feedstock for its Deer Park refinery in Texas.
Natural Gas Prices Could Rise Across Mexico, Thanks to Trump
Mexico’s dependence on U.S. natural gas is far harder to address. Most imported natural gas arrives in Mexico through 24 cross-border pipelines, 15 of them in Texas. Mexico has liquified natural gas terminals capable of receiving shipments from other regions, but they are smaller and more expensive than pipeline gas.
If the U.S. government imposed controls on natural gas exports to Mexico –whether to gain immigration concessions, ensure domestic supply (as Texas governor Greg Abbott ordered during the storm Uri), or combat corruption (as Senator Dan Sullivan, an Arkansas Republican, has proposed in a bill introduced last September)– the consequences for Mexico would be severe. The United States supplies 70% of Mexico’s total natural gas consumption, of which 90% originates in Texas, according to Natural Gas Intelligence using data from the Energy Information Administration. This natural gas in turn supports 60% of Mexican power generation and amounts to 40% of Mexico’s primary energy supply, as analysis from the International Energy Agency shows. Any disruption to the flow of U.S. natural gas toward Mexico would bring industrial processes and much of power generation to a halt.
For U.S. energy producers –particularly in Texas– such a move would also have steep costs. Mexico is a lucrative market for U.S. natural gas producers. Disrupting this trade would prove costly for the Texan economy. And it would risk the potential role of Mexico as a transit hub for future U.S. LNG exports to Asia.
Ultimately, a tariff on Mexican crude oil or restrictions on U.S. natural gas exports to Mexico would cause significant economic damage to both nations. The costs alone make it unlikely that barriers to energy trade will rise – assuming economic logic prevails. If this is the case, U.S.-Mexico energy trade should continue to thrive –not just survive– under the new Trump administration
