US President Donald Trump has announced plans to impose a 25% tariff on Mexican goods starting February 1. This decision, analysts warn, could deliver a severe blow to Mexico’s economy, which relies heavily on trade with its northern neighbor.
Mexican President Claudia Sheinbaum has called for “a cool head” in response, urging calm and strategic thinking to navigate the potential crisis.
Could Tariff Threats Trigger a Recession in Mexico?
Mexico’s economy is highly dependent on trade with the United States, which accounts for 83% of its exports. Analysts from London-based consultancy Capital Economics believe Mexico is “arguably the most vulnerable” to US trade protectionism.
Key sectors like electronics and automobiles are particularly exposed, as 50% of their demand comes from the United States. The automobile industry alone contributes 5% of Mexico’s GDP, making it a critical part of the nation’s economy.
Adding to the challenge, US concerns about Chinese technology entering supply chains further complicate Mexico’s trade position.
According to Oxford Economics, if tariffs are implemented, the Mexican peso could weaken significantly, leading to inflation. Such economic stress might push Mexico into a technical recession, though tourism might see a boost as a weaker peso could attract more foreign visitors.
Trump’s Strategy: Pressure Through Tariffs
President Trump has linked the tariff threat to Mexico’s inability to curb illegal immigration and drug trafficking into the United States.
Former Mexican trade negotiator Kenneth Smith sees this as a tactic to extract concessions from Mexico, much like Trump’s earlier strategy during his first term. At that time, he used tariff threats to reduce Central American migration at the US border.
Analyst Arantza Alonso of Verisk Maplecroft noted that Trump’s delay in implementing tariffs until February 1 gives Mexico time to negotiate and possibly make concessions.
Experts suggest that Mexico could leverage its cooperation on migration and drug control to stave off tariffs. Additionally, buying more US goods and reducing imports from China might help ease US concerns.
Mexico could also consider retaliatory tariffs targeting US agricultural products, which would impact Republican strongholds like Texas, Nebraska, Iowa, and the Dakotas.
The Future of the USMCA
The United States-Mexico-Canada Agreement (USMCA), which replaced NAFTA in 2020, was supposed to safeguard Mexico and Canada from US tariffs.
“Imposing tariffs on all products violates the treaty,” said Diego Marroquin, an international trade expert at the Wilson Center.
However, the USMCA is due for review in July 2025, and many believe the tariff threat signals Trump’s intent to renegotiate the agreement sooner.
According to Shannon K. O’Neil and Julia Huesa from the Council on Foreign Relations, Trump may use the USMCA review to reshape trade, migration, and security policies in North America while addressing concerns over China’s growing influence in supply chains.
Mexico’s Response To Tariff Threats and Long-Term Plans
President Sheinbaum remains optimistic about the trade agreement, calling it “one of the best trade agreements in history” and essential for competing with Asian economies, particularly China.
To address US concerns, she has unveiled a plan to replace Chinese imports with Mexican-made goods, ensuring Mexico remains a reliable partner in North America’s economic ecosystem.