President Trump’s executive order designating Mexican cartels and other criminal organizations as foreign terrorists may compel some American companies to avoid business operations in Mexico to avert U.S. sanctions, according to former government officials and analysts. This potential outcome could significantly impact both nations due to their extensive economic interdependence.
The executive order, signed on Monday, aims to exert maximum pressure on Mexico to address its dangerous drug trade. This designation grants the administration enhanced authority to impose economic penalties, enforce travel restrictions, and possibly undertake military actions in foreign nations.
However, disentangling cartel operations from U.S. interests in Mexico presents a substantial challenge. Mexico is the United States’ largest trading partner for goods, and numerous American firms maintain manufacturing operations in the country.
The complexity deepens as these criminal networks have expanded their activities beyond drug trafficking and human smuggling into various sectors of the legal economy, including avocado farming and the tourism industry. This entanglement complicates efforts to ensure that American companies remain isolated from cartel activities.
Samantha Sultoon, a senior adviser on sanctions policy, noted that previous administrations considered such designations but refrained due to concerns about their implications on trade and economic ties between the two nations.
The foreign terrorist designation could result in severe penalties for companies and individuals involved in ransom or extortion payments, as well as those making payments to Mexican companies unknowingly controlled by cartels. Additionally, some extortion payments, even if made under duress, could be classified as “material support” to cartels.
Former officials and analysts highlighted the difficulty in identifying businesses affiliated with cartel members due to the vast number of individuals operating across various industries. Criminal organizations often utilize the legal economy for money laundering, complicating the detection of cartel affiliations among employees.
As a result, risk-averse American financial institutions may choose to avoid transactions with Mexican entities, impacting cross-border production and trade. Former State Department official Eric Jacobstein indicated that banks may decline customers perceived as high-risk due to potential links to Mexico.
Fabian Teichmann, an expert on terrorist financing, emphasized that banks might opt to withdraw from sectors deemed risky, such as Mexico’s avocado trade, where cartel activities have surged.
Financial services facilitating payments between the U.S. and Mexico, including platforms like Venmo or PayPal, could also face repercussions from the terrorist designation.
The designation might push significant portions of Mexico’s economy further into the informal sector, where cash transactions prevail, making it more challenging for investigators to scrutinize cartel finances.
In a 2024 survey conducted by the U.S. Chamber of Commerce, 12 percent of companies reported that organized crime had partially influenced the sales and distribution of their goods.
Additionally, the recent liability ruling against Chiquita Brands for payments to a Colombian paramilitary group highlights the potential risks companies face in relation to organized crime.
American firms reliant on Mexican labor could also be adversely affected by the broad nature of the designation, which could include penalties against businesses whose employees send remittances to family involved in organized crime in Mexico.
If money transfer companies like Western Union cease operations to Mexico over compliance concerns, the impact on the remittance-dependent Mexican economy could be severe, given that remittances accounted for nearly 5 percent of the country’s GDP in 2023.
The foreign terrorist designation could also enable the U.S. to deploy military forces within Mexico against criminal organizations without the Mexican government’s approval, potentially straining U.S.-Mexico relations built over decades.
Craig Deare, a former U.S. military attaché, warned that unilateral actions could dismantle decades of cooperation between the two nations and lead to a breakdown in defense relations.
Mexican President Claudia Sheinbaum issued a warning to President Trump, emphasizing the importance of defending Mexico’s sovereignty and advocating for coordinated efforts to combat drug cartels.
“We all want to fight the drug cartels, that is obvious,” she stated, asserting that collaboration is essential in addressing the issue.