President Trump’s executive order designating Mexican cartels and other criminal organizations as foreign terrorists could force some U.S. companies to withdraw from doing business in Mexico rather than risk U.S. sanctions, according to former government officials and analysts — an outcome that could have a major impact on both countries given their deep economic interdependence.

The executive order signed by Mr. Trump on Monday, intends to exert maximum pressure on Mexico curb his dangerous drug trade. The designation, in general, also gives his administration more power to impose economic penalties and travel restrictions, and potentially even take military action in foreign countries.

Still, disentangling cartel operations from U.S. interests in Mexico could be immensely complicated. Mexico is the largest trading partner of the United States goods, and many American companies have production facilities there.

More complicatingly, these criminal networks have expanded their operations far beyond drug trafficking and people smuggling. They are now embedded in a wide swath of the legal economy, from avocado farming to the country’s billion-dollar tourism industry, making it difficult to be absolutely certain that American companies are insulated from cartel activity.

“This has come up in previous administrations across the political spectrum and from members of Congress who wanted to do this,” said Samantha Sultoon, senior adviser for sanctions policy and threat financing in the Trump and Biden administrations.

“But nobody did that because they were looking at what the implications would be for trade, economic and financial relations between Mexico and the United States,” she added. “Everybody came away thinking that such an appointment would actually be super short-sighted and reckless, even though previous administrations viewed the US-Mexico relationship far differently than the incoming Trump administration seems to.”

Being designated a foreign terrorist could lead to serious penalties — including substantial fines, asset forfeiture and criminal charges — for companies and individuals found to be paying ransom or extortion. U.S. companies could also be ensnared by standard payments to Mexican companies that the cartel controls without the U.S. companies’ knowledge.

Some extortion payments, even if made under duress, can be considered “material support” to cartels, said Pablo Zárate, senior managing director of FTI Consulting, the US firm that published report exposing some of the risks of being labeled a terrorist.

Former US officials and analysts have pointed out that it would be almost impossible to identify which companies might employ or be linked to cartel members given the tens of thousands of people involved and operating in various industries, including the hotel and agricultural sectors. Cartels use the legal economy to launder money, which could mean that unwitting employees working at a resort or avocado packing company could technically be on the cartel’s payroll without knowing it.

As a result, companies in the risk-averse US financial sector may simply refuse to transfer money to a Mexican factory, for example, to facilitate cross-border manufacturing and trade, or to transfer money between personal accounts.

“Banks can turn customers away because they may think they’re not worth the risk if they have ties to Mexico,” said Eric Jacobstein, a former State Department official in the Biden administration.

Banks may ultimately choose to avoid entire sectors considered high-risk, said Fabian Teichmann, a Swiss lawyer and expert on terrorist financing. Mr. Teichmann singled out the avocado trade in Mexico, where the cartels are drastically expanded their businessas one area that could come under greater scrutiny.

“Banks might say, ‘We don’t want to be anywhere near those who are considered terrorists, so we want to avoid that risk,'” Mr. Teichmann said. “From a banking perspective, it will be a very sensible decision.”

Other types of financial institutions that facilitate payments between the United States and Mexico could also be affected, such as Venmo or PayPal, which Trump confidante Elon Musk helped found.

The terrorist label could also push large parts of Mexico’s economy further into the shadows, where cash is used instead of electronically traceable transactions, making it harder for investigators to probe the cartel’s financial structures, Mr. Teichmann said.

“If people can’t bank legitimately, they flee to so-called underground banking systems,” Mr. Teichmann said.

In 2024, the American Chamber of Commerce surveyed 218 companies and found that 12 percent of respondents said that “organized crime has taken partial control over the sale, distribution and/or pricing of their goods.”

Multinational banana producer Chiquita Brands was declared responsible in 2024 for murders by a Colombian right-wing paramilitary group designated as a terrorist organization. Chiquita Brands said the paramilitary group extorted and forced it to pay to protect its Colombian employees. Prosecutors, however, claimed the company paid a paramilitary group to evict residents in order to buy the land at low valuations.

A terrorist designation would also hurt American companies that are firmly established north of the border but rely on Mexican labor. The designation is so broad and vague that ranches in Texas or farms in California could be hit with fines if their employees send remittances to family members in Mexico involved in organized crime.

If money transfer companies like Western Union also halt transactions to Mexico due to concerns about due diligence on Mexican clients, it could affect the remittances the country relies on. This would be disastrous for the Mexican economy, which has received 63.3 billion dollars in remittances in 2023almost 5 percent of the country’s gross domestic product.

A foreign terrorist designation could also pave the way for the United States to deploy forces inside Mexico against criminal organizations without the consent of the Mexican government, as it has done in Afghanistan and Syria.

But Afghanistan has been occupied by the United States, and the Syrian government has lost control of much of its territory in recent years. This gave Washington cover under international law for the US military to deploy troops and launch special forces operations to kill or capture terrorist leaders in those countries.

Mexico, however, has been developing cooperation with the United States in the fight against cartels for more than 30 years. Mexico could threaten to end cooperation if the United States is found to be violating Mexican sovereignty. When US federal prosecutors office arrested The former Minister of Defense of Mexico during the first administration Mr. Trump, the Mexican government has cut off all cooperation with the US Drug Enforcement Administration.

“Unilateral action would be catastrophic,” said Craig Deare, a former US military attaché at the US embassy in Mexico in the 1990s.

“It would destroy all cooperation and decades of Republican and Democratic efforts to build a defense relationship with Mexico,” he said, adding, “If you don’t like cooperation now, wait until Mexico cuts all ties.”

On Tuesday, Mexican President Claudia Sheinbaum issued a stark warning to Mr. Trump during her daily news conference. “We will always defend our sovereignty,” Ms. Sheinbaum said. “We all want to fight the drug cartels, that’s obvious. So what do we do? We must coordinate efforts; we have to work together,” she said.

“Let them know that the president of the republic will always defend Mexico above all else,” the Mexican president added.