Mexico’s Delicate Balancing Act: The Impact of Sanctions on Vulcan Materials

A group of senators, spearheaded by Bill Hagerty, a close ally of President Donald Trump, have proposed a bill that would impose sanctions on Mexico if the expropriation of Calica is finalized.

The Mexico Plan, aimed at attracting investment and generating jobs, has been under scrutiny. The question is how the Mexican government plans to alleviate investor concerns about the country’s risk perception. According to the World Economic Forum and the Organization for Economic Cooperation and Development, Mexico’s large market size is a significant draw for foreign investors, particularly for consumer goods projects that do not require advanced technology.

However, these organizations also highlight that breaches of the USMCA and other international treaties, notably the judicial reform and the dissolution of the Federal Economic Competition Commission and the Federal Telecommunications Institute, have caused many companies to reconsider their investments.

The relationship with Donald Trump will be a significant challenge for Claudia Sheinbaum’s administration and will greatly influence the trajectory of the Mexican economy during her term. The United States accounts for 83 percent of Mexico’s exports, 40.2 percent of its imports, 61.4 percent of its total trade, and over 145 billion dollars in direct investment. Sheinbaum, unlike López Obrador, does not yet have a direct line of communication with Trump’s close circle.

Reports from the Economist Intelligence Unit and the Eurasia group suggest that Mexico will be the country most affected by Trump’s decisions. The way both governments manage their relationship will have significant implications, not only for the two countries but also for others.

Actions against Vulcan Materials, a leading producer of construction aggregates in the United States, could jeopardize any investment. The company acquired Calica in 2001, and the resolution of this issue will set a precedent that could either bolster the credibility of the Mexican government and the Mexico Plan or deter investors.

Since May 2022, American legislators have sent several letters to President Biden, Ambassador Tai, and Secretary Blinken, calling for their intervention to resolve this issue that began in 2018. The expropriation of the port of Punta Venado, the only deep-water port in the Yucatan Peninsula, has security implications for North America and the Caribbean.

The proposed sanctions against Mexico, led by Senator Bill Hagerty, are a response to the potential expropriation of Calica. Other senators, including John Cornyn, have also announced additional sanctions.

On December 12, the Wall Street Journal reported that the Office of the Trade Representative (USTR) was in discussions with the governments of Mexico, Canada, and Colombia. These talks could impact the investor-state dispute settlement mechanism of the investment chapter of the treaties with these countries. The US Chamber of Commerce (USCOC) has also issued warnings about these negotiations.