President Trump’s executive order designating Mexican cartels and other criminal organizations as foreign terrorists could force some U.S. companies to stop doing business in Mexico rather than risk U.S. sanctions, former government officials and analysts said. This is an outcome that could have major implications for both countries. This is because there is deep economic interdependence.
The executive order signed by President Trump on Monday is aimed at putting maximum pressure on Mexico to curb the dangerous drug trade. More generally, the designation gives his administration more power to impose economic penalties and travel restrictions and potentially take military action in foreign countries.
But separating U.S. interests and cartel activity in Mexico can be incredibly complex. Mexico is the United States’ largest goods trading partner, and many U.S. companies have manufacturing facilities in Mexico.
To further complicate matters, these criminal networks have expanded their reach beyond drug trafficking and human smuggling. They are now embedded in such a wide swath of the legal economy, from avocado farming to America’s multibillion-dollar tourism industry, that it is difficult to be absolutely certain that American companies are insulated from cartel activity.
“This is coming from across the political spectrum, from previous administrations and members of Congress who wanted this,” said Samantha Sultoon, senior adviser for sanctions policy and threat finance for the Trump and Biden administrations.
“But no one has done that because we looked at what the impact would be on trade, economic and financial relations between Mexico and the United States,” she added. “They all think that such a designation is actually very short-sighted and imprudent. “But the previous administration viewed U.S.-Mexico relations much differently than the incoming Trump administration.”
Designation as a foreign terrorist can result in serious penalties, including large fines, asset seizures, and criminal charges against companies and individuals found to have paid ransoms or extortion payments. Additionally, U.S. companies may be ensnared by standard payments made to Mexican companies that cartels control without the U.S. company’s knowledge.
Some extortion payments, even when made under coercion, could be considered “material support” for the cartels, said Pablo Zarate, managing director of U.S. firm FTI Consulting, which released a report outlining some of the risks of the terrorist designation.
Former U.S. officials and analysts have noted that given the tens of thousands of people involved and operating in a variety of industries, including the hotel and agricultural sectors, it would be nearly impossible to identify which companies may employ or affiliate with cartel members. Cartels use the legal economy to launder money. This could mean that unwitting employees working at resorts or avocado packing companies are technically on the cartel’s payroll but may not know it.
As a result, companies in the risk-averse U.S. financial sector may simply refuse to transfer funds to Mexican factories or between private accounts, for example, to facilitate cross-border production and trade.
“If banks have ties to Mexico, they may turn away customers because they may think it’s not worth the risk,” said Eric Jacobstein, a former State Department official during the Biden administration.
Fabian Teichmann, a Swiss lawyer and expert on terrorist financing, said banks could ultimately decide to avoid entire sectors that are perceived as high risk. Mr. Teichmann singled out Mexico’s avocado trade, where cartels have significantly expanded their activities, as an area that could be subject to greater scrutiny.
“Banks can say, ‘We don’t want to be close to people who are considered terrorists, so we want to avoid that risk,’” Teichmann said. “From a banking perspective, this would be a very rational decision.”
Other types of financial institutions that facilitate payments between the U.S. and Mexico could also be affected, such as Venmo or PayPal, which President Trump’s confidant Elon Musk helped discover.
The terrorist label could also push a large part of Mexico’s economy into the shadows, where cash is used instead of electronically traceable transactions, making it difficult for investigators to probe the cartel’s financial structure, Mr. Teichmann said.
“When people can’t bank legally, they escape into the so-called underground banking system,” Mr. Teichmann said.
In 2024, the American Chamber of Commerce in Mexico conducted a survey of 218 companies and found that 12% of respondents said “organized crime partially controlled the sale, distribution and/or pricing of products.”
Chiquita Brands, a multinational banana producer, was found responsible in 2024 for alleged killings by a Colombian right-wing paramilitary group designated a terrorist organization. Chiquita Brands says it was robbed by paramilitaries and had to pay Colombian employees to protect them. But the plaintiffs alleged that the company paid paramilitary groups to purchase land at depressed prices by exhausting residents.
The terrorist designation would also hurt American businesses north of the border but dependent on Mexican labor. The designation is so broad and vague that a ranch in Texas or a farm in California could be fined if its employees send money to family members in Mexico who are involved in organized crime.
Money transfer companies like Western Union also suspending transactions to Mexico over concerns about properly screening Mexican customers, which could impact remittances the country relies on. This would be a huge blow to Mexico’s economy, which received $63.3 billion in remittances in 2023, nearly 5% of Mexico’s gross domestic product (GDP).
A foreign terrorist designation could also pave the way for the United States to deploy troops in Mexico against criminal gangs without the consent of the Mexican government, as it has done in Afghanistan and Syria.
But Afghanistan has been occupied by the United States, and the Syrian government has lost control of much of its territory in recent years. This gives Washington leeway under international law to deploy troops and launch special forces operations to kill or capture the country’s terrorist leaders.
However, Mexico has been cooperating with the United States for over 30 years to combat cartels. If the United States appears to be violating Mexico’s sovereignty, Mexico can threaten to cease cooperation. After U.S. federal prosecutors arrested Mexico’s former defense secretary during Trump’s first administration, the Mexican government suspended all cooperation with the U.S. Drug Enforcement Administration.
“Unilateral action would be disastrous,” said Craig Deare, a former U.S. military attaché at the U.S. Embassy in Mexico in the 1990s.
“This will dismantle all cooperation and decades of effort by Republicans and Democrats to build a defense relationship with Mexico,” he said, adding, “If you don’t like cooperation now, wait until Mexico cuts off all ties.” .
On Tuesday, Mexican President Claudia Sheinbaum gave President Trump a stern warning during her daily press conference. “We will always defend our sovereignty,” Ms. Sheinbaum said. “We all want to fight drug cartels. It’s obvious. So what should we do? We must coordinate our efforts. “We must cooperate,” he said.
“I want them to know that the President of the Republic will always and above all defend Mexico,” the Mexican president added.
