EL PASO, Texas (Border Report) – Mexico’s new leader has faced a tough first year in office, with a U.S. president demanding she stops drugs and migrants from moving northward while dealing with the activities of organized criminal groups at home.
Things will get even more complicated for President Claudia Sheinbaum in 2026, as the Mexican economy deals with stagnant growth, on and off U.S. tariffs, a diminished flow of remittances from abroad and the cost of her administration’s massive new welfare program.
So says Tony Payan, executive director of the Center for the U.S. and Mexico at Rice University’s Baker Institute for Foreign Policy.
On Thursday, Payan presented the Baker Institute’s Mexico Country Outlook 2026. It examines Mexico’s current socioeconomic climate using data and analysis to predict coming trends.
Payan sees red flags when it comes to democracy, finances and the approach to organized criminal activity.
More social programs, less poverty, but is it sustainable?
The Sheinbaum administration and her MORENA Party in Congress made constitutional changes that weaken oversight and make the legislative and judicial branches compliant to the president, the Baker Institute report says.
“The opposition will become more vulnerable due to the governing coalition’s use of social programs to build an electoral clientele and the weaking of regulatory institutions,” the report says.
Sheinbaum’s predecessor and mentor Andres Manuel Lopez Obrador initiated a welfare program that includes monthly cash transfers to the elderly and other vulnerable groups. Payan doubts the government can afford those cash payments in the long run.
“Poverty has gone down, but is it sustainable? Can you reduce poverty in a country with cash transfers if the economy is on its back?” he said. “Revenue collection is aggressive because they are running out of money; some people are no longer receiving their cash.”
Sheinbaum has repeatedly gone on social media touting there are 13.5 million fewer Mexicans living in poverty than just a few years ago. She has fully embraced and funded Lopez Obrador’s Bienestar welfare plan.
Payan stated Lopez Obrador handpicked Sheinbaum and “gave her a playbook” that the current Mexican president refuses to let go of despite major changes in the economic outlook including the U.S. tariffs.
“Lopez Obrador inherited a fairly healthy economy, growing 2% a year. In the eighth year of the 4T (the MORENA Party project) clearly, she doesn’t have the money, she doesn’t have the resources, she doesn’t have the performing economy — it’s flat, practically zero,” Payan said. “The country has to borrow more […] close to 1 out of 5 (dollars) in the federal budget are going to service debt. Cash transfers for elderly and youth are also committing a quarter of the federal budget.”
The new aggressive revenue collection is “asphyxiating” small and mid-sized businesses, he added. That comes on top of a mandatory minimum wage that went from 80 pesos a day ($4.31) in 2017 to 320 ($17.24) now. The increase does not guarantee more productivity nor includes skills development provisions, Payan said.
Further, remittances – the money Mexicans working abroad send to their families – are expected to be down 12% this year. Last year’s $64.7 billion in remittances were just under 4% of Mexico’s gross domestic product.
Despite this gloomy scenario painted by Mexico experts in the U.S., Sheinbaum remains one of the most popular leaders in the world, with approval ratings in the 80s in Mexico. Payan said he has studied some of the surveys and sees a “disconnect” in people’s responses.
“As a political scientist, I scratch my head to these 80% ratings. I’d like to know more. I ask, ‘how is the security situation? Bad. How is the economy? Bad. What do you think of the president? Great.’ There is a disconnect,” he said.
It’s not unusual for Mexicans to place their faith in leaders who be loathed once they leave office. Carlos Salinas de Gortari was seen as a visionary for pushing free trade but ended up self-exiled in Europe while his brother went to jail on criminal charges.
Felipe Calderon was widely praised for attempting to end the reign of organized crime in Mexico in the mid-2000s; now Lopez Obrador and Sheinbaum blame him for the country’s ongoing narco-violence.
Calderon discovered “the criminals fight back,” Payan said.
USMCA will no longer be ‘just a trade agreement’
Even before taking office, Trump threatened Mexico with 25% across-the-board tariffs if it didn’t help the U.S. stop the “invasion” of drugs and migrants. Those tariffs are in place today, but only for some products not covered by the U.S.-Mexico-Canada Agreement (USMCA).
Now, Trump wants Mexico to roll back its trade with China; the threat of more U.S. tariffs is always there and Sheinbaum knows it. She announced tariffs on 1,371 Chinese products.
“Sheinbaum has taken the strategy that whatever the U.S. wants, the U.S. gets. Her attitude is, ‘We don’t want to pick a fight, we are not going to provoke Trump’s ire,” Payan said.
The USMCA is up for review next year. The Baker Institute expects tariffs could become permanent on non-North American content. That will make Mexico more dependent on the U.S. as the revised treaty likely will limit China’s economic activities in Mexico. The U.S. could push for more access to Mexico’s energy sector and additional investment protection measures.
Then there’s the fact Mexico did not fulfill water delivery obligations to the United States based on a 1944 treaty.
“Mr. Trump will extract concessions on security, or water and (the USMCA) will no longer be a trade agreement; it will be an agreement with several chapters (on several issues),” Payan said. “At the end of the day, Mexico has no choice.”
Cartels, Trump place Sheinbaum between rock and a hard place
Although she has made concessions on drug traffickers – she “expelled” to the U.S. dozens of Mexican citizens wanted on drug crimes – she refuses to declare war on the drug cartels sending tons of fentanyl and other illicit drugs to American cities.
In her daily news conferences, she often equates the phrase “war on drugs” to human rights violations. She is staunchly opposed to U.S. soldiers going after drug lords in Mexico or sending drones to bomb them. She once quoted a line of the national anthem of Mexico that says if a foreign invader sets foot on national territory, heaven gave Mexico a soldier in everyone of its sons.
“Fentanyl smuggling will remain a key issue in the bilateral security agenda in 2026,” the Baker Institute report says. “President Sheinbaum’s narrative, focused on preventing fentanyl overdose deaths in the U.S. and Mexico, has been instrumental in setting the conversation on this critical issue. Even so, Mexico should anticipate increased fentanyl production in the country.”
That’s because the U.S. is moving to close loopholes in how precursor chemicals enter the country, forcing traffickers to send even more of those chemicals to Mexico, per the Baker Institute.
That, in turn, will lead to more narco-violence.
Payan said Mexico has increased the number of National Guard members to 100,000 but their role is limited to assisting when called by local authorities.
The federal police led by Public Safety Secretary Omar Garcia Harfuch consists of 12,000 officers for a country with a population of 130 million.
“The National Guard is practically demobilized. Love is demonstrated by money,” Payan said. “If security is really your priority, double that (police) force and give them the money and training and ability to combat organized crime – not to burn the village to save the village, the approach of Calderon – but their budget doesn’t show a priority despite successes here and there.”
Payan opined resources and possibly the fear of finding out some of her party officials at the local level have ties to drug traffickers, may be holding her back. But he said drug cartels are capitalists who will not stop trying to make money whether the government leaves them alone or not.
“How can we build the narrative as a problem that is a co-responsibility (of the two countries)?” he asked. “We fight traffickers in Mexico and invest in reducing the demand (for drugs). It is a joint problem; we have to be co-responsible.”
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