The Mexican president, Sheinbaum, is taking action in response to new US tariffs. Mexico plans to introduce additional measures if an agreement with the US is not reached by 1 August.
Sheinbaum opposes the US duties placed on tomatoes, indicating disagreement with the policy. She suggested that Mexico is actively combating drug cartels and implied the US must also contribute to the effort.
Future Implications on Trade
The comments from Sheinbaum are the first concrete sign of a strategy, and for us, that means the period of quiet observation is over. The coming weeks are about positioning for a spike in volatility, not picking a direction. While her pushback on tomato duties seems minor, it’s a proxy for the entire $800 billion U.S.-Mexico trade relationship. We see this as the opening shot in a negotiation that will play out in the currency and equity markets long before the August 1 deadline she mentioned.
The Mexican peso is the primary battlefield. We saw what political uncertainty did just after the election, when the USD/MXN pair blew out from under 17.00 to over 18.50 in a matter of days. That was the market pricing in the risk of a supermajority. Now, we are pricing in active friction. Therefore, buying volatility on the peso is the most direct trade. We are looking at long-dated options straddles on the USD/MXN pair. This allows us to profit from a sharp move in either direction, whether cooler heads prevail and the peso strengthens, or the rhetoric escalates and it weakens further. The key is anticipating the *size* of the move, not its direction.
Beyond the currency, we are looking at the iShares MSCI Mexico ETF (EWW), which is still nursing its wounds after dropping more than 10% in the week following the election. Sheinbaum’s assertive stance, especially her comments linking cartel enforcement to U.S. cooperation, creates headline risk that will weigh on investor sentiment. Any hint of retaliatory measures from Mexico will hit the components of this ETF directly. We are using put options on EWW as a hedge or an outright bearish bet on the broader Mexican market’s ability to withstand a trade spat.
Long Term Strategy and Historical Context
Historically, we’ve seen this playbook before. During the fraught NAFTA renegotiations between 2017 and 2018, implied volatility on the peso remained elevated for months, rewarding those who were long volatility even as the spot price chopped around. The current situation is amplified by the upcoming 2026 USMCA review. Every tariff threat and counter-threat today is an early move on that much larger chessboard. Her comments aren’t just about tomatoes, which represent over $2.5 billion in annual imports to the U.S.; they are about setting the tone for the next two years.
