President Donald Trump’s recent decision to impose sweeping 25% tariffs on all steel and aluminum imports has stirred significant concern among economists and policymakers, particularly for Mexico, one of the most affected nations.
Set to take effect on March 12, 2024, these tariffs do not allow for exemptions, impacting not only Canada and Brazil but also Mexico, which together account for about half of U.S. steel imports. The immediate question is—how will this policy shape Mexico’s economy and key industries?
Ildefonso Guajardo, former Secretary of Economy under President Enrique Peña Nieto, expressed deep concern over the potential fallout. He pointed out, “The steel is fundamental because it is used in production chains. So, it is not recommended to respond with tariffs on steel…” This implies any retaliatory tariffs from Mexico could increase production costs for various industries, affecting their competitiveness.
The automotive and construction sectors are among the most vulnerable. Edmundo Enciso Villarreal, president of the Commissions of Nearshoring and Foreign Trade of the Confederación Patronal de la República Mexicana (COPARMEX), echoed this sentiment, noting, “The automotive and auto parts industry would see increased costs, risking regional competitiveness.” This highlights how intertwined these industries are with U.S. trade policies.
Secretary of Economy Marcelo Ebrard also weighed in, labeling the tariffs “a bullet to the foot for both countries.” He highlighted how Mexico imports more steel from the U.S. than it exports, arguing the logic behind the tariffs is questionable, particularly when the trade balance favored the U.S. by two million tons and over $4 billion.
This new tariff regime introduces unexpected pressures at a time when Mexico is already grappling with economic woes. Following the expansive spending during AMLO’s administration, which aimed to fuel public projects and social programs, Mexico was left facing historical fiscal challenges, with the fiscal deficit reaching 5.9% of GDP, the highest it has been in over thirty years.
The backdrop of these tariffs is one of economic uncertainty. Since Trump's return to the presidency on January 20, 2024, there has been rising apprehension over the future of U.S.-Mexico relations. The situation worsened when Trump announced another 25% tariff on exports from Mexico on February 1, 2024, claiming it would pause for 30 days, allowing Mexico to demonstrate efforts against drug trafficking and immigration issues.
Such aggressive trade tactics by the Trump administration not only threaten industries but also put formal employment at risk. A significant portion of new jobs remain informal, which presents broader challenges like limited social security and decreased tax contributions.
Reflecting on these developments, the overarching concern for Mexico is establishing sustainable growth. Without concrete measures, such as realistic fiscal reforms to broaden the tax base or economic restoration programs based on productive incentives, the country risks descending farther down the path of stagnation and vulnerability.
The reality is stark. A study from Deutsche Bank suggests, “If U.S. companies cannot find cheaper alternatives, they will likely end up absorbing the tariffs, leading to increased consumer prices and reduced demand.” This indicative statement reflects how deeply connected the two economies are and suggests possible repercussions for the U.S. market as well.
While it may seem logical to pursue retaliatory measures, Guajardo warns of the danger inherent in raising tariffs. “By imposing reciprocal tariffs on imports, you risk making your own supply chains more expensive and less competitive.” This concept demonstrates the complexity of international trade, where decisions made by one nation can ripple through multiple sectors of another.
Given the interdependencies, failing to address these new challenges will undoubtedly lead to inflationary pressures within Mexico and could impede its economic recovery efforts moving forward.
Even as the economic indicators paint a concerning picture, Ebrard advocates for discussions with U.S. officials to mitigate the fallout. He insisted the argument wouldn’t merely be one of retaliatory tariffs but rather articulately showcasing the balance of trade and its impacts on both economies. The conclusions drawn from these encounters may hold significant weight for future negotiations.
With time running out, it remains to be seen whether Mexico can articulate and execute strategic actions necessary to protect its economy. Without decisive reforms and governmental action, the continuous turmoil engendered by external pressures may trap the nation in an unyielding loop of meager growth alongside increasing external dependency.