Mexico braced for Trump’s trade storm amid new tariff, border threats

The relationship between Mexico and the United States is currently fraught with difficulties following Donald Trump’s election to a second term in government.

There is a chance that long-standing problems like trade, migration, and security will take a negative turn, with possible repercussions for both nations.

The Mexican economy has already been impacted by Trump’s previous statements, which included his threats to slap high taxes on Mexican imports, especially automobiles, and his severe attitude on immigration.

The already precarious peso may face additional pressure if these concerns come to pass.

For instance, businesses that depend on trade between the two countries may suffer greatly from Trump’s previous plans to slap tariffs of up to 200% on Mexican automobiles.

Businesses have already voiced concerns about possible interruptions, such as Honda, which imports thousands of cars from Mexico annually.

However, even the more modest potential of 25% taxes on Mexican imports, raised by Trump during the campaign, has unsettled markets, driving the peso to a two-year low versus the US dollar. Such actions could severely harm Mexico’s export-driven economy, potentially prompting sovereign rating downgrades and reducing foreign direct investment.

Financial analysts worry that imposing such high tariffs will have an impact on Mexico’s formal job sector and overall economic growth.

The threat exists despite the two countries’ significant economic interdependence, which includes sophisticated supply chains that cross the border.

However, Trump’s hard-line stance could also test Mexico’s political will.
The US president-elect’s “America First” policy could lead to a more aggressive approach towards trade and national security.

While Mexico benefited from the renegotiation of the North American Free Trade Agreement (NAFTA) under Trump’s first term, the current political landscape is vastly different. The potential for a more protectionist stance, especially in the automotive sector, looms large.

Furthermore, Trump’s focus on combating drug cartels is another area of concern.

Mexico’s battle with the flow of fentanyl – a synthetic opioid responsible for tens of thousands of American deaths annually – is a priority for both governments.

Another emerging issue is China’s increasing economic footprint in Mexico.

Despite Washington’s pressure, Mexico has allowed Chinese companies to expand their presence, a move that could create friction with Trump’s administration. His pledge to impose steep tariffs on Chinese goods, as well as his broader protectionist trade policies, could put Mexico in a difficult position.

The expansion of Beijing’s economic influence in the region, combined with Mexico’s efforts to attract foreign investment through an open incentive programme, could lead to a direct collision with the Trump administration’s hawkish stance on Chinese imports.