Mexican President Claudia Sheinbaum, who was inaugurated on October 1, has come into office with more political power than any Mexican leader since the country’s transition away from single-party rule in the 1990s. As the protégée of and successor to Andrés Manuel López Obrador (also known as AMLO), she received a record 35.9 million votes—nearly 60 percent of those cast for the top office—and effectively controls a two-thirds supermajority in Congress. Her party, Morena, governs 22 of the country’s 31 states, enough to ratify constitutional reforms. And the recent overhaul of Mexico’s courts, whereby all judges will be elected rather than appointed, will likely consolidate Sheinbaum and her party’s control over the judicial system, as they will choose the vast majority of candidates on the ballot.

Yet economic headwinds will temper this political gift, as expectations for fast and meaningful action on wage increases, a greener energy grid, expanded public benefits, and other issues will likely outpace Sheinbaum’s ability to deliver. Hopes that Mexico could become a hub for U.S. manufacturing and attract more foreign direct investment are diminishing because of a lack of infrastructure, the growing scarcity of energy and water, deteriorating security, and rising uncertainty for businesses given the court overhaul and further plans to do away with independent regulators. Sheinbaum faces a cash squeeze as the economy slows and public coffers empty.

Hanging over these challenges, moreover, is the U.S. election, the outcome of which will determine the future of bilateral cooperation on security, migration, and commerce. No matter who enters the White House in January, there is an opportunity—albeit a narrow one—for a reset with Mexico, one that could make both countries safer and more prosperous rather than beset with crises and consistently at odds with each other.

Over the last few years, near-shoring, or efforts to relocate U.S. business operations to neighboring countries, has boosted Mexico’s economy. For U.S. manufacturers in particular, the country’s geographic proximity, free trade access, and a wealth of industrial suppliers make Mexico an attractive location for companies looking for alternatives to China. In 2023, Mexico surpassed both China and Canada to become the United States’ top trading partner, with over $800 billion worth of goods crossing the border. Rising international corporate spending and foreign direct investment pushed growth above three percent for the last three years, raising hopes that Mexico could finally break out of its more than two decades of mediocre economic performance. But Sheinbaum’s political and economic policy proposals, which have come into clearer focus since her inauguration, are threatening to undo that progress.

At first blush, Sheinbaum’s administration does look to be more private-sector friendly than the last. She has filled her cabinet with technical experts and intellectuals. Her public infrastructure plans, laid out in meaty PowerPoint decks shared at international investor conferences, would improve Mexico’s logistics and infrastructure with new roads, rails, ports, and airports. A climate scientist by training, she recognizes the need for a transition toward green energy, an about-face from the previous administration, which doubled down on fossil fuels and refineries.

Nonetheless, whether because of true beliefs or political necessity, she has pledged to retain elements of the AMLO administration that are not friendly to the private sector, including measures that favor state-owned companies, curb legal guarantees for private companies, and weaken or eliminate many of the independent checks and balances in Mexico’s political system. She is committed to a large and expanding role for the government in the economy. She has vowed to keep the majority of power generation and distribution, even if greener than in the past, in government hands—an endeavor that will cost the state an estimated $40 billion over the next five years. She has promised public support for some two million farmers. She has vowed to continue—and even expand—an array of state programs, including scholarships, internships, and pensions for Mexico’s students, workers, and elderly. And she has fully backed Mexico’s recent judicial reform, which will require all judges—filling nearly 7,000 posts—to be elected by voters rather than appointed by the state, in the name of democratizing the courts. With the long lists of candidates nominated mostly by her office—or her party, which also controls Congress—many in business and across society worry about the neutrality and fairness of verdicts to come.

The vast security challenges that Sheinbaum has inherited have also left investors and policymakers in the United States and elsewhere anxious. Cartel-fueled violence and instability surged under the AMLO administration: over the last six years, murder rates hovered near all-time highs, and extortion rates, forced disappearances, and human trafficking climbed. Organized crime has strengthened its hold on more of the country—and on its politics. Recent elections saw record levels of electoral violence, with over three dozen candidates killed and dozens more bowing out after receiving threats.

Sheinbaum has pledged to take a stronger stance on law enforcement than did her predecessor. She has appointed Omar García Harfuch, a career police officer who was credited with nearly halving Mexico City’s homicide rate as the capital’s top law enforcement official, as security minister. In his new position, he has presented a plan to concentrate security forces and step up intelligence efforts to capture and prosecute criminals and dismantle crime rings in Mexico’s most........

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