On the campaign trail, Donald Trump promised to raise tariffs on foreign-made goods. And since winning the presidential election, he has threatened severe tariffs on America’s closest trade partners, Canada and Mexico.
What risk do the proposed Trump tariffs pose to trade between Mexico and the United States? Will a Trump presidency actually achieve these high tariffs? And if so, what can we expect in the next several years of US-Mexico trade?
Newly elected President Trump took to Truth Social the week after the election to promise tariff hikes on Mexico and Canada. He vowed that his very first day in office – January 20th – he will sign all the necessary paperwork to levy a 25% tariff via executive order.
Regardless of the fact that Mexico is a member of the USMCA (formerly NAFTA), which guarantees duty-free imports from Mexico on most goods, Trump claims all goods coming into the States from Mexico will be subject to 25% duties.
Trump also proposed a 10% increase in tariffs on China until the country stops allowing fentanyl to enter the United States. He maintained that the tariffs on Mexico and Canada would also remain in effect until they stop the flow of illegal immigrants and drugs into the country.
Mexico’s new president, Claudia Sheinbaum, responded to the Trump tariff threat by implying that Mexico is prepared to respond with equal tariffs on US-made goods. She also pointed out that there is a problem with US-made firearms being illegally smuggled into Mexico, with as much as 70% of firearms used by criminals being brought to Mexico illegally from the US. She underscored that the US and Mexico should work together to resolve these cross-border problems.
In addition to being a member of USMCA, Mexico is also the United States’ biggest trading partner. And it’s reciprocal. The US exports more to Mexico than any other country, and Mexico exports more to the US than any other country.
A full 80% of exports made in Mexico are bound for US ports. As such, a 25% tariff could cripple the country, significantly depressing their export-driven economy. But it’s not only the Mexican economy that would suffer. Binational companies that have built the Mexican-US partnership into their business model like Ford and GM would also suffer from increased costs. In fact, the automotive and other industries would see a dramatic rise in the cost of doing business with the US.
With the extensive damage to US-Mexican trade that a 25% tariff would bring about, it begs the question: will we actually see tariffs like this on Day 1 or in the near future? Is President Trump bluffing in order to get some concession out of Mexico, or are we about to see a trade war break out with our top trading partner? Just what does Trump’s second term hold for Mexican export manufacturing and trade?
Trump has already indicated that he wants a renegotiation of the USMCA. He was notoriously outspoken in his criticism of NAFTA when he first ran for president. And when he brokered its replacement in the USMCA during his first term, he insisted on a renegotiation clause. According to that clause, the option exists to renegotiate in 2026, and Trump has already stated he will exercise this option to improve the deal even more.
He could be angling for a redo of USMCA. Trump’s bellicose rhetoric and threats to trade partners in the past have done well by him in bringing these trade partners to the negotiation table. In fact, Trump’s threats of starting a trade war with China resulted in his brokering a trade deal with them soon after. And in this case, there’s another aim he may be shooting for.
In fact, he already stated it plainly in his threat for a 25% tariff on Mexico: reducing the flow of illegal drugs and immigrants.
As everyone is aware, thousands of people are pouring through Mexico and Canada, bringing Crime and Drugs at levels never seen before…This Tariff will remain in effect until such time as Drugs, in particular Fentanyl, and all Illegal Aliens stop this Invasion of our Country!…and until such time that they do, it is time for them to pay a very big price!
From this post to his social media platform, Truth Social, it would seem the reasoning behind the Trump Tariffs is pretty straightforward. The incoming president is seeking leverage over Mexico in the effort to curb illegal immigration and fentanyl crossing the border.
It may well be that the tariff threat everyone is talking about right now and calculating the damage and repercussions of, will never actually come to into being. Certainly they could, and any serious talk about a 25% tax on goods from Mexico should be weighed.
However, according to his own words, Trump is likely seeking to start a serious negotiation on measures the Mexican government can take to address migrant caravans and illegal drugs crossing the border. And the 25% tariff is just his opening offer.