The Mexican president, Sheinbaum, is reacting to new tariffs imposed by the US. Mexico plans to take further action if a deal with the US is not reached by August 1. Sheinbaum is against the US duties on tomatoes, showing her disapproval of the policy. She mentioned that Mexico is working hard to fight drug cartels and suggested that the US should also do its part.

Future Implications on Trade

Her comments are the first clear sign of a strategy, indicating that the time for quiet observation has ended. In the coming weeks, we should expect increased market volatility, rather than a specific direction. While her opposition to tomato duties may seem small, it represents the larger $800 billion trade relationship between the US and Mexico. We view this as the starting point for negotiations that will affect currency and stock markets long before the August 1 deadline. The Mexican peso is where the action is. We witnessed how political uncertainty led to the USD/MXN exchange rate jumping from under 17.00 to over 18.50 shortly after the election. This was the market reacting to the risk of a supermajority. Now, we are seeing active conflict, making buying volatility on the peso a direct strategy. We are exploring long-term options straddles on the USD/MXN pair. This strategy lets us profit from significant price changes, regardless of whether the peso strengthens or weakens. The focus is on the *size* of the move, not which direction it takes. Besides currency, we are also considering the iShares MSCI Mexico ETF (EWW), which has dropped over 10% following the election. Sheinbaum’s strong comments, particularly linking cartel actions to US cooperation, create potential risks that could affect investor confidence. Any suggestion of retaliatory measures from Mexico will negatively impact this ETF’s components. We are using put options on EWW as a hedge or a bearish position regarding the Mexican market’s resilience against a trade conflict.

Long Term Strategy and Historical Context

We have seen similar situations before. During the NAFTA renegotiations in 2017 and 2018, implied volatility on the peso remained high for months, benefiting those who invested in volatility as the spot price fluctuated. The current scenario is made more complex by the upcoming 2026 USMCA review. Each tariff threat and counter-threat is an early move in this larger game. Sheinbaum’s comments go beyond tomatoes, which represent over $2.5 billion in annual US imports; they set the tone for the next two years. Create your live VT Markets account and start trading now.

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