
Washington:
US President Donald Trump has threatened to impose a 25 percent tariff on Mexican goods on February 1, a move analysts say would deal a severe blow to Latin America’s second-largest economy.
Mexican President Claudia Schönbaum called for “cool heads” in response to Trump’s trade and other policy announcements.
What would be the impact if Mexico’s largest trading partner were to impose tariffs?
– Will tariffs put Mexico into recession? –
Mexico’s economy is “most vulnerable” to U.S. trade protectionism, according to London-based consulting firm Capital Economics.
Mexico replaced China as its largest trading partner in 2023 with the United States, which buys 83 percent of its exports.
Capital Economics said the electronics and automotive sectors would be particularly hard hit by the tariffs as half of their demand comes from the United States.
He noted that the automotive sector alone generates five percent of Mexico’s national economic output.
The two sectors are also “where U.S. security concerns about Chinese technology entering the country are high.”
According to Oxford Economics, another consulting firm, U.S. tariffs and expected Mexican retaliation will weaken the Mexican peso, boost inflation and “could push Mexico into a technical recession.”
Analysts said tourism could benefit if a weaker currency makes vacations in Mexico more attractive.
– What is the advantage to Mexico? –
Trump said he plans to implement the tariffs on February 1 due to his failure to curb illegal immigration and drug trafficking in the United States.
According to former Mexican trade negotiator Kenneth Smith, his threats are aimed at “putting pressure on and trying to get concessions.”
During his first term (2017-2021), Trump successfully used the threat of tariffs to pressure Mexico to reduce the number of Central American migrants arriving at the South American border.
“By pushing back the implementation of the tariffs until February 1, Trump is giving Mexico time to make concessions,” said Arantza Alonso, an analyst at risk intelligence company Verisk Maplecroft.
Capital Economics believes that cooperation to combat migrant and drug flows “could be an effective bargaining chip to prevent tariffs.”
Buying more from the US and less from China could also satisfy the US, he said.
Alonso said retaliatory farm tariffs that would hit Republican states like Texas, Nebraska, Iowa and especially the Dakotas are another option.
– Has the Free Trade Agreement expired? –
In principle, Mexico and Canada should be protected against U.S. tariffs by a regional free trade agreement that was renegotiated under Trump.
“Putting tariffs on all products is a violation of the agreement,” said Diego Marroquin, an international trade expert at the Wilson Center, a Washington-based think tank.
The United States-Mexico-Canada Agreement (USMCA), which replaced the previous NAFTA agreement on July 1, 2020, is due to be revised by July next year.
“This assessment now appears ready for a full renegotiation as President Donald Trump reshapes North American trade, migration and security, as well as dealing with China’s growing influence in regional supply chains. Want to take advantage of the conversation for.” Council on Foreign Relations experts Shannon K. O’Neill and Julia Hewsa wrote in a briefing note.
According to EMPRA, a Mexican political risk consultancy, Trump has shown signs of wanting to renegotiate as soon as possible, saying he does not intend to kill the USMCA.
“Trump is committed to securing more favorable terms for the U.S., particularly regarding the automobile industry,” he told clients.
Sheinbaum recently hailed the USMCA as “one of the best trade agreements in history” and “the only way we can compete with Asian countries, especially China.”
He proposed a plan to replace Chinese imports with domestically produced goods — apparently to ease Washington’s concerns that Chinese companies might want to use Mexico as a back door into the United States.
(Other than the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
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