Economics: The US 25% tariff affects a high percentage of Mexican non-USMCA products; the threat of reciprocal tariffs heightens uncertainty

MEXICO - Report 25 Mar 2025 by Mauricio González and Francisco González

Tariff threats against Mexico have focused on demanding measures to prevent migration and fentanyl trafficking. However, it is very likely that issues directly related to foreign trade, attracting production chains to the US and a strategy to reduce the presence of Chinese products in the joint USMCA region will loom ever larger in the narrative of President Trump and US trade authorities in light of the possible renegotiation of the USMCA in 2026.

Following the imposition of a 25% tax on all US imports from Mexico on March 4, 2025, the Trump administration scaled it back on March 6 to apply only to non-USMCA goods, temporarily exempting products under the agreement until April 2. This measure generated interest in the percentage of products outside the USMCA that would face tariffs. Considering figures from 2024, we estimate that this percentage is 40.6%, which have been exported mainly under the Most Favored Nation regime. This regime requires compliance with fewer requirements but could also have generated possible triangulation of Chinese products. In this context, the measure could seek greater compliance with the USMCA, reduce triangulation and also be used as a pressure mechanism, which would be reinforced with the announcement of the reciprocal tariff scheme on April 2. This could imply a significant impact on Mexico if a permanent high tariff were to be imposed.

In this past week's indicators, Thursday’s aggregate demand figures showed that GDP growth for the fourth quarter of 2024 decelerated to 0.5%, slower than the January-September average (1.2%), due to a drop in investment (-15.6% public and -0.8% private) and a sharp deceleration of private consumption, from 2.7% in Jan-Sep to 0.5% in Oct-Dec. The weakening of investment and consumption was offset by strong export growth of 12.6%; had that not occurred, fourth quarter GDP would have contracted.

The Mexican economy is in a weakening cycle. Productive investment has waned along with business distrust in the face of the multiple internal and external risks facing the country. Employment growth has declined, which has slowed consumption and generated the prospect of a possible economic downturn that discourages investment.

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