“We're definitely making the factory in Mexico. We feel very good about that. We put a lot of effort into looking at different locations and we feel very good about that location. We are going to build a factory there and it's going to be great.”

Oh, those great days when Elon Musk had such rapport with Mexico that not only was he planning a “gigafactory” in Monterrey, he also got a dedicated crossing lane at the border to expedite auto parts for Tesla Inc. into Texas. It sounds like ages ago, but Musk made the comments in October 2023, at the peak of the post-pandemic supply chain turmoil, when companies were desperately trying to relocate out of China for geopolitical reasons, and Mexico was seen as a prime alternative (remember “nearshoring”?).

Fast forward 15 months and Musk is now spending his time disrupting the U.S. government as a key adviser to President Donald Trump, the same administration that announced 25% tariffs on all goods imported from Mexico and Canada over the weekend. Things move fast in North America.

I have no idea how this story will end: The postponement of the tariffs for a month, as announced by Mexican President Claudia Sheinbaum on Monday morning, is good news and supports the view of some analysts and investors that Trump is just bluffing to try to extract the best possible deal out of regional partners.

There are still reasons to believe that Trump is dead serious about these tariffs too. Trump’s second term has already been a much bigger irritant to allies than his relatively restrained first mandate. Even if it’s just a negotiating tactic, naming Mexico’s government an ally of the narcos and calling for the annexation of Canada are provocations that will take a lot of goodwill to repair. I fear the ambitions of this White House go beyond any eventual trade agreement.

But regardless of the fate of these extraordinary measures, for Mexico the damage is already done. This is not just because tariffs, if finally put into effect, are likely to send the Mexican economy into recession this year; steep surcharges on over $500 billion in exports will slam growth and jobs. Should tariffs remain, my Bloomberg Economics colleagues estimate that Mexico could lose as much as 70% of its exports to the U.S. in the medium term.

The biggest hit from Trump’s actions, though, will be to Mexico’s investment potential: If the free trade agreement in North America — known as USMCA — is permanently put into question by the U.S., there is no point in establishing new factories south of the border to serve the American market.

Companies would be better off building capabilities in Texas, Alabama or South Carolina than establishing supply chains in Mexico even if they can get cheaper costs in the Latin American nation. The idea that Mexico’s integration to the U.S. economy was unstoppable, rooted in the positive experience of the past three decades, has been seriously tainted.

That may well be Trump’s end game after all: The crisis may pass, but the threat of tariffs will hang like the Sword of Damocles over any investments in Mexico and Canada for the remainder of his administration or longer, giving persuasive arguments to corporations to stay at home. If the U.S. president can renege on a binding deal he signed without Congress or the courts saying a word, you might as well stick a fork in the idea of nearshoring. It’s done.

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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

JP Spinetto is a Bloomberg Opinion columnist covering Latin American business, economic affairs and politics. He was previously Bloomberg News’ managing editor for economics and government in the region.

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