The Trump administration’s transfer to impose tariffs on Mexico despatched shock waves throughout the nation of 130 million folks on Sunday, with financial sector after sector bracing for the affect of those measures.
Thus far, Mexico has but to offer any specifics on the way it plans to hit again. However President Claudia Sheinbaum’s negotiators should choose from areas the place her nation has some leverage to react, equivalent to agriculture, and components of the financial system the place it has little or none, just like the vitality trade.
“Simply as a place to begin, Mexico has to retaliate,” stated Kenneth Smith Ramos, a former Mexican authorities negotiator who put collectively the retaliation checklist in 2018, when the nation squared off with the primary Trump administration over tariffs.
“However it is advisable do it in a method that causes financial hurt within the U.S., with precision pictures on sure merchandise that additionally trigger political turbulence,” Mr. Smith Ramos added.
That might imply new tariffs on Kentucky bourbon, high-fructose corn syrup, pork or different merchandise coming predominantly from states that supported President Trump within the November election.
Circumstances have modified for the reason that final time Mexico and the USA had been mired in a commerce disaster, throughout Mr. Trump’s first time period. Since then, Mexico has eclipsed China as the most important buying and selling accomplice in items with the USA. Mexico additionally emerged because the prime market worldwide for U.S. meals and agriculture exports, with these imports surging 7 % from the earlier yr to greater than $29 billion, in keeping with the U.S. Division of Agriculture.
But when agriculture is one space the place Mexico might discover quite a few methods to retaliate, different components of the financial system, like vehicle manufacturing or vitality, expose the nation’s deep vulnerabilities to Mr. Trump’s heavy-handed ways.
In these sectors, Mexico’s reliance on the USA has really elevated lately, giving its negotiators much less maneuvering room. However Mr. Trump’s tariffs might nonetheless resonate in the USA in the event that they end in increased costs for vehicles or refined fuels like diesel.
Mexico additionally has another instruments at its disposal.
The authorities might enable the nation’s foreign money, the peso, to weaken towards the greenback, successfully making its exports extra aggressive regardless of Mr. Trump’s tariffs. The peso fell 2.5 % in buying and selling on Sunday to 21.21 to the greenback, its lowest stage since Russia’s invasion of Ukraine rattled markets in 2022.
A 17 % slide in worth of the peso over the previous yr, mixed with the tariffs imposed on Canada and China, amongst Mexico’s primary rivals within the U.S. market, will ease the blow from the tariffs in Mexico, stated Alberto Ramos, head of the Latin American analysis workforce at Goldman Sachs.
However the actual danger to Mexico’s financial system is whether or not the commerce conflict will likely be resolved rapidly or prolong over a protracted time period. If the tensions go unresolved, that might result in manufacturing unit closures, job losses and a recession, economists warn.
Raine Mahdi, chief government of Zipfox, a San Diego-based firm that hyperlinks factories in Mexico with American corporations in search of options from Asia, stated he considered the tariffs as a negotiating tactic geared toward successful concessions from Mexico in areas like migration and the drug commerce.
“All Mexico actually must do, and they’re going to, is present some real sincere effort in these areas,” Mr. Mahdi stated. “That’s all that is about.”
Nonetheless, politics would possibly get in the way in which of hammering out a deal. The Trump administration’s assertion that Mexico’s authorities has an “insupportable alliance” with drug cartels has already hit a nerve in Mexico’s political institution, producing a stern rebuke from Ms. Sheinbaum.
In a video responding to the U.S. tariffs, the Mexican president on Sunday referred to as Mr. Trump’s declare that the Mexican authorities had an alliance with felony teams “terribly irresponsible.” She stated she was making ready to announce retaliatory measures on Monday morning.
“In the event that they need to act, they need to not set their sights on Mexico, however on their very own nation, the place they’ve finished nothing to cease the unlawful sale of this and different medication,” Ms. Sheinbaum stated, referring to fentanyl.
As tensions simmer, these are the areas of Mexico’s financial system which can form the nation’s response to Mr. Trump’s tariffs.
Mexican farmers, who provide 63 % of U.S. vegetable imports and 47 % of its fruit and nut imports, might come below intense strain if the tariff dispute intensifies. Merchandise like avocados, which have skilled skyrocketing demand from American customers, will seemingly get dearer.
However as Mexico has elevated its agricultural exports to the USA, it additionally grown into crucial marketplace for U.S. meals and agricultural exports, forward of each Canada and China.
That might enable Mexico to focus on sure merchandise from the USA with tariffs. In 2018, Mexican negotiators strategically positioned tariffs on merchandise from states and areas with robust ties to the primary Trump administration, together with apples, bourbon, cheese, cranberries, pork and potatoes.
Canada, which Mr. Trump additionally hit with 25 % tariffs, has already introduced retaliatory levies on chosen U.S. items this time round. The nation’s response is concentrated on maximizing the impact in Republican-controlled states, in a bid to get representatives from these states to ask the president to name off U.S. tariffs and de-escalate.
That tactic, together with comparable tariffs on U.S. merchandise from Canada, appeared to work when officers from Mexico, Canada and the USA returned to the negotiating desk. Scrapping the tariffs imposed on the time, they renegotiated the commerce treaty intertwining the three international locations and hammered out the U.S.-Mexico-Canada Settlement, which Mr. Trump signed in 2020.
The destiny of that treaty, referred to as the usM.C.A., is now up within the air, as Mr. Trump and his advisers argue that its phrases weren’t restrictive sufficient to stop American producers from shifting factories exterior the USA.
In the case of agriculture, specialists say Mexico might even have the potential to pivot, albeit slowly, to different markets. Whilst Mexico has relied on the USA, Mexico has more and more sought to broaden commerce with international locations in Asia and Latin America.
Mexico has additionally strengthened ties with the European Union, which is the second-largest marketplace for Mexican exports after the USA, and imports merchandise like tequila and beer, espresso, fruit juice, avocados and berries.
Along with tariffs, Mexico might get rid of preferences for imported grains and vegetable oils from the USA, probably opting to import such merchandise from Latin American agricultural powerhouses like Brazil or Argentina. However that might require main modifications to infrastructure like ports and railways, one thing onerous to do within the close to time period.
Cars
The brand new tariffs have the potential to wreak havoc on Mexico’s vehicle trade, a linchpin of the nation’s financial system using a couple of million folks and accounting for about 5 % of gross home product.
Autos and auto components are Mexico’s largest export to the USA, price $157 billion in 2023. As car manufacturing has waned through the years in Canada, it has elevated in Mexico, exposing automobile producers from around the globe, and their many hundreds of Mexican workers, to disruptions.
About 27 % of Nissan’s gross sales in the USA had been sourced from Mexico in 2024, whereas Stellantis sourced 23 % and Basic Motors sourced 22 %, in accordance a report by S&P World, a supplier of economic data and credit score scores.
As provide chains have more and more grown extra complicated and intertwined, Mexico seems to have comparatively little leverage to reply with measures focusing on U.S. automobile producers since many of those corporations already function in Mexico and are grappling themselves with tips on how to react.
However Mexico might present a concession by doing extra to curb imports of Chinese language autos, that are rapidly making inroads in an essential marketplace for U.S. and European automobile producers.
Uncertainty over one of many primary engines of Mexico’s financial system might produce manufacturing unit closures and job losses at dwelling. And in the USA, the tariffs on autos might place better pressure on car affordability when automobile costs are approaching historic highs.
For American customers, the 25 % import tax would add $6,250 to the typical $25,000 landed value (which incorporates the car value, transportation and duties) of a car from Mexico, S&P estimated.
Power
One other weak spot for Mexico is vitality. After a pricey guess on fossil fuels and years of underinvestment in its personal vitality manufacturing, Mexico faces each declining oil output and a dearth of renewable vitality assets to bolster its grid.
Laying naked this dilemma, Mexico depends on imports of U.S. pure fuel for a staggering 70 % of its home pure fuel consumption.
The nation’s fast-growing, low-cost industrial base is very depending on these vitality imports to energy factories, warehouses and knowledge facilities. That reliance might forestall Mexico from inserting its personal tariffs on imported U.S. vitality.
Mexico additionally exports roughly 700,000 barrels of crude oil a day to the USA, cargoes that may now face a 25 % import tax. (In contrast, tariffs of simply 10 % will likely be positioned on Canadian vitality exports to the USA.)
In flip, Mexico additionally imports massive quantities of refined fuels like gasoline and diesel from the USA. Ms. Sheinbaum’s predecessor, Andrés Manuel López Obrador, had sought to curb this dependence by constructing enormous new refineries in Mexico.
However immense value overruns and delays have saved Pemex, Mexico’s debt-laden nationwide oil firm, from lowering this dependence on gasoline imports from the USA. That leaves Mexico with much less leverage because it prepares to answer the Trump administration’s measures.
Annie Correal contributed reporting from Mexico Metropolis.
