Mexico has experienced Donald Trump’s inauguration as if it were a political earthquake.

Every conversation in the media, business circles and the political world since Tuesday has focused on guessing the potential damage of Trump’s new diktats. “Here comes the wolf!” cried one Mexican newspaper on its cover, with a picture of the U.S. president holding one of his executive orders. Aptly.

Trump’s actions may be felt in every corner of the globe but their reverberations in Mexico are stronger: Latin America’s second-largest economy is the U.S.’s top trading partner; their nearly 2,000-mile shared border is the world’s busiest international land crossing; Mexicans are the largest group of immigrants in the U.S. and the biggest group of those living there without legal status.

Yet I’m less concerned by the impact of Trump’s transformational measures on the key issues of migration and bilateral trade, areas of contention that Mexico has in many ways prepared for, than on the complex topic of fighting organized crime and narcotrafficking. Due to diverging strategies, deep-seated mutual grievances and the growing complexity of transnational criminal networks, I see trouble ahead.

Start with Trump’s opening salvo of initiating the designation of Mexico’s criminal cartels as terrorist groups. Although it may be more symbolic than practical for now, the long-term consequences it holds are worrying: Organized crime has rooted itself very deeply in Mexico in recent decades.

Gangs already operate in more than 70% of the country’s territory, according to calculations by the risk-management firm Control Risks. Extortion is rife, and the penetration of the cartels in both the formal economy and the political system is significant.

Mexico’s President Claudia Sheinbaum has tried to change tactics after the failure of the “hugs, not bullets” strategy of her predecessor Andrés Manuel López Obrador, or AMLO, focusing on giving more resources and training to Mexico’s security forces while taking a more repressive stance.

But the challenge is too big for Mexico to undertake by itself; for the U.S. having a neighbor the size of Mexico that can’t control its territory will always be a security danger. A U.S. military incursion into Mexico with the excuse of taking down drug lords is something Trump floated already during his first mandate, and the idea is resurfacing with strength now. Understandably, Mexico will consider such actions a massive violation of its sovereignty.

The proposal to treat cartels as terrorists, if it completes inter-agency review, adds significant collateral risks: Anyone who has contacts with narcos, knowingly or not, could be accused of collaborating with terrorists, from avocado producers in Michoacán that pay to stay alive to the U.S. gun industry that has been selling arms to criminals.

That poses a phenomenal challenge for any corporate compliance system in North America, particularly financial institutions. The difficulties for international banks to distinguish between legal and illegal businesses would lead to overcompliance — when rules are applied beyond what is strictly required — damaging investment. It will also hamper U.S. aid programs designed to address the poverty and lawlessness that have made working for the cartels an attractive option.

More fundamentally, Mexico and the U.S. have serious differences about how to tackle the security challenge they face: While Mexico argues about root causes and frames the issue as a drug demand problem in the U.S., its northern neighbor is frustrated by the lack of results by the Mexican side.

Both countries can’t even agree on where fentanyl comes from, with the Mexican government still insisting that precursors aren’t sourced locally. Equally, Mexico keeps demanding that U.S. authorities clarify the arrest of Sinaloa kingpin Ismael “Mayo” Zambada, suspected to have been an undercover operation by American forces in July.

This mutual mistrust was fueled by repeated clashes in recent years, including the arrest in Los Angeles of General Salvador Cienfuegos in 2020: Accused of narcotrafficking by U.S. authorities, he was eventually returned to Mexico with the promise of being investigated and prosecuted there — only to be first cleared by prosecutors and then decorated by AMLO later.

“The cooperation between the U.S. and Mexico in terms of security isn’t fluid,” former Mexican ambassador to the U.S. Gerónimo Gutiérrez told me. “Mexico has some big challenges still to resolve.”

Some experts have argued for a security treaty between Mexico and the U.S., the same way there is a trade agreement, to address the problem without being overshadowed by business or migration considerations. That’s an idea worth exploring.

Mexico’s cartels represent a savage menace to both countries that must be met with a more effective response. But for that to happen, Mexico and the U.S. need to have an honest conversation about common goals. This unilateral terrorist designation by Trump, and the measures that could flow from it, promise to make such a conversation much more difficult. And without a unified strategy, the insecurity challenge will only grow, begetting even more extreme ideas to try to solve it.

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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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