Washington:
US President Donald Trump has threatened to impose 25 percent tariffs on Mexican goods on February 1, a move analysts say would deal a heavy blow to Latin America’s second-largest economy.
Mexican President Claudia Sheinbaum called for a “cool mind” in response to Trump’s trade and other policy announcements.
What impact would it have on Mexico if Mexico’s largest trading partner imposed tariffs?
– Will tariffs drive Mexico into recession? ,
According to London-based consultancy firm Capital Economics, Mexico’s economy is “arguably the most vulnerable” to US trade protectionism.
Mexico replaced China as its largest trading partner in 2023 with the United States buying 83 percent of its exports.
Capital Economics said the electronics and vehicle sectors would be particularly exposed to tariffs because half of their demand comes from the United States.
It states that the automobile sector alone generates five percent of Mexico’s national economic output.
Both of these areas “are areas where US security concerns are high about Chinese technology entering the country.”
According to Oxford Economics, another consulting firm, the US tariffs and expected Mexican retaliation would weaken the Mexican peso, increase inflation and “could push Mexico into technical recession.”
However, analysts say tourism could benefit if the weak peso makes vacations in Mexico more attractive.
– What advantage does Mexico have? ,
Trump said he was thinking about imposing tariffs on February 1 because of their failure to stop illegal immigration and drug trafficking into the United States.
According to former Mexican trade negotiator Kenneth Smith, their threats are aimed at “exerting pressure 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 coming to the southern border.
“By pushing back the imposition of tariffs until February 1, Trump is giving Mexico time to make concessions,” said Arantza Alonso, an analyst at risk intelligence firm Verisk Maplecroft.
Capital Economics believes that cooperation on combating migrants and drug flows “could be an effective bargaining tool to prevent tariffs.”
It said the United States could also be reassured by buying more goods from the United States and less from China.
Retaliatory farm tariffs that would particularly hit Republican states like Texas, Nebraska, Iowa and the Dakotas are another option, Alonso said.
– Has the free trade agreement expired? ,
In theory, Mexico and Canada should be protected against U.S. tariffs by a regional free trade agreement, which was renegotiated under Trump.
“Imposing tariffs on all products is a treaty violation,” 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, will be reviewed by July next year.
“This review is now poised to become a full-scale renegotiation as President Donald Trump seeks to reframe North American trade, migration and security, as well as discuss ways to address China’s growing influence in regional supply chains,” the council said. Want to take advantage of.” Foreign relations expert Shannon K. O’Neill and Julia Husa wrote in a briefing note.
According to Mexican political risk consultancy EMPRA, signs that Trump wants early renegotiation suggest he does not plan to dismantle the USMCA.
“Trump is committed to securing more favorable terms for the US, particularly with respect to the automobile industry,” it told clients.
Sheinbaum recently described the USMCA as “one of the best trade agreements in history” and “the only way to compete with Asian countries, especially China.”
He presented a plan to replace Chinese imports with domestically produced goods — an apparent bid to ease Washington’s concerns that Chinese companies want to use Mexico as a backdoor into the United States.
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