Trump and Mexican President Sheinbaum will meet today to talk about Mexico’s tariff proposal, which is due by August 1. Mexico wants to change its tariffs on different products to comply with the USMCA agreement and address other concerns. Under the current rules, products that meet USMCA standards have a 0% tariff. Non-compliant imports face a 25% tariff, with steel also at 25% and aluminum at 10%. Auto and auto parts that don’t meet the standards also incur a 25% tariff. There’s a proposal to raise this tariff to 30% starting August 1, pending further legal actions.

Potential Trade Agreement Impact

If an agreement is reached, it may require investment in the US and tackle issues like fentanyl. Trump is focused on increasing domestic auto manufacturing, but specific solutions are still unclear. These discussions may affect future trade relations between the US and Mexico. We’re closely watching for increased volatility around the Mexican peso and US companies that operate across the border. Implied volatility on peso options has already risen by 15% this past week, showing market anxiety before the August 1 deadline. This situation feels similar to the market fluctuations during the US-China trade talks in 2018. Trading the Mexican peso is a direct way to respond to this event. As of July 2025, the peso has weakened to 18.5 against the dollar due to fears of new tariffs. A surprising deal could trigger a strong rally, so buying short-term peso call options might be a good strategy to take advantage of this potential increase.

Sector Impact and Market Reactions

We’re also paying attention to the auto and industrial sectors, as they are most at risk. Last year, US auto parts exports to Mexico hit a record $35 billion, so a 25% tariff could severely disrupt supply chains. Traders may want to buy protective put options on auto ETFs or specific companies with major production in Mexico. Additionally, if talks break down, it could negatively affect the entire market. We remember how tariff announcements in 2019 led to declines in the S&P 500, and we could see a similar “risk-off” reaction again. Keeping an eye on VIX futures for any spike above the 20 level could be a wise move to protect broader portfolios. Create your live VT Markets account and start trading now.

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