The decision by the Trump administration to impose tariffs on Mexico has caused concern across the country of 130 million people. Various economic sectors are preparing for the impact of these measures, with Mexico yet to announce specific retaliatory actions. President Claudia Sheinbaum’s negotiators will need to carefully select areas where Mexico has leverage to react, such as agriculture, while also considering sectors like energy where it has little to no leverage.
Former Mexican government negotiator Kenneth Smith Ramos emphasized the need for Mexico to retaliate in a strategic manner that causes economic harm in the U.S. while also creating political turbulence. Potential retaliatory measures could include new tariffs on products like Kentucky bourbon, high-fructose corn syrup, and pork, coming from states that supported President Trump in the election.
The current trade landscape between Mexico and the United States has shifted, with Mexico now being the largest trading partner in goods with the U.S. and a top market for U.S. food and agriculture exports. However, Mexico’s deep vulnerabilities in sectors like automobile manufacturing and energy expose the country to risks from Mr. Trump’s tariffs.
Mexico may choose to allow its currency, the peso, to weaken against the dollar to make its exports more competitive. However, the real risk to Mexico’s economy is if the trade war prolongs, potentially leading to factory closures, job losses, and a recession. The fate of the U.S.-Mexico-Canada Agreement (USMCA) is also uncertain, as Mr. Trump and his advisers argue that its terms were not restrictive enough to prevent American manufacturers from moving factories outside the U.S.
In response to the tariffs, Mexico could target certain U.S. products with tariffs, similar to the strategy used during the previous trade crisis. The country could also pivot slowly to other markets in Asia and Latin America, as well as strengthen ties with the European Union.
The automobile industry, a key sector for Mexico’s economy, could face disruptions due to the tariffs. Mexico’s energy sector, reliant on U.S. natural gas imports, also presents challenges for the country. Overall, the response of Mexico’s economy to Mr. Trump’s tariffs will depend on strategic decisions in various sectors and the potential impact on trade relationships with the U.S. and other countries.