Insights 
VT 
Trump and Mexican President Sheinbaum are scheduled to discuss Mexico’s tariff proposal today, presented ahead of the August 1 deadline. Mexico plans to adjust its tariffs for various products, reflecting compliance with the USMCA agreement and other concerns.
Currently, USMCA-compliant products have a 0% tariff rate. Non-originating imports face a general tariff of 25%, with steel also at 25% and aluminium at 10%. Auto and auto parts, if non-originating, also incur a 25% tariff. A potential increase to 30% is proposed from August 1, pending legal steps.
Potential Trade Agreement Impact
The pending agreement may require investment into the US and address issues like fentanyl. Trump’s focus includes manufacturing autos domestically, though specific resolutions are not yet apparent. The discussions will likely shape future trade relations between the US and Mexico.
We are watching for a spike in volatility around the Mexican peso and US companies with heavy cross-border operations. Implied volatility on peso options has already jumped by 15% this past week, signaling market nervousness ahead of the August 1 deadline. This reminds us of the sharp market swings we saw during the US-China trade talks back in 2018.
The Mexican peso is the most direct way to trade this event. We’ve seen the peso weaken to 18.5 against the dollar in July 2025 as traders priced in the risk of new tariffs. A surprise deal could cause a sharp rally, so buying short-dated peso call options could be a way to capture that upside.
Sector Impact and Market Reactions
We are also looking closely at the auto and industrial sectors, as they are directly in the line of fire. Given that US auto parts exports to Mexico reached a record $35 billion last year, any disruption from a 25% tariff would hit supply chains hard. Traders might consider buying protective put options on auto ETFs or specific manufacturers with significant production in Mexico.
Beyond specific sectors, a breakdown in talks could create a headwind for the entire market. We remember how tariff announcements in 2019 led to pullbacks in the S&P 500, and we could see a similar “risk-off” sentiment return. Monitoring VIX futures for a potential spike above the 20 level could be a prudent hedge for broader portfolios.
