The recent decision of Donald Trump’s administration to impose tariffs on Mexican imports has set off alarm bells in the economic, commercial and social sectors of both countries. The measure jeopardizes the stability of the USMCA and raises doubts about the future of the trade relationship between Mexico and the United States. Against this backdrop, key questions arise: what will be the long-term repercussions, what strategies will Mexico implement to mitigate the impact and respond to this challenge?
What are tariffs and what is their impact?
Tariffs are duties imposed on imported products in order to make them more expensive and protect domestic production. In the case of the United States, the importer pays the tariff when the merchandise enters the country, but this cost is usually passed on to end consumers, raising prices and reducing their purchasing power.
In addition, tariffs make imported inputs more expensive, affecting the competitiveness of the companies that depend on them and generating inflationary pressures. At the trade level, they can trigger retaliation from other countries, affect agreements such as the USMCA and generate uncertainty, which discourages investment and weakens bilateral trade.
Trump toughens his tariff policy
Donald Trump announced that, as of March 4, his administration will impose a 25% tariff on all imports from Mexico and Canada. In addition, Canadian energy products, such as oil and electricity, will be subject to an additional 10% tariff. According to Trump, the measure seeks to pressure both countries to strengthen their efforts in the fight against drug trafficking, particularly fentanyl.
China will also be targeted by new trade restrictions. The current 10% tariff on its imports will be doubled to 20%, on the grounds that China must tighten control over the export of precursor chemicals used in the production of fentanyl.
In addition, as of April 2, 2025, Trump will implement so-called “reciprocal tariffs,” a strategy that aims to match the taxes that other countries levy on US products with the tariffs that the US imposes on its imports.
Rationale behind the new tariffs
Trump justifies the imposition of tariffs as part of his strategy to protect the US economy and reduce the trade deficit. He has accused Mexico of allowing a “massive immigration invasion,” pointing to it as responsible for increased crime, drug trafficking and downward pressure on wages in the U.S. However, data indicates that border crossings are down from record levels in 2023.
Beyond political discourse, tariffs also function as a pressure tool on key issues such as migration and border security. In addition, Trump’s strategy seeks to incentivize domestic production and generate additional revenue to finance his fiscal agenda, in line with his protectionist vision, albeit at the risk of affecting regional trade and the stability of the USMCA.
Industries and sectors affected by tariffs
The imposition of tariffs represents a significant blow to the Mexican economy, whose trade relationship with the United States ranges from the automotive industry and semiconductors to the energy sector and agricultural products. In 2023, automotive and electronics manufacturing exports reached approximately US$200 billion, accounting for 46% of Mexico’s total sales to the U.S., according to the Ministry of Economy.
Among the most vulnerable sectors are:
- Automotive and Auto Parts: The most exposed industry, with a high degree of integration in the North American supply chain.
- Electronics and Appliances: Includes screens, computers, refrigerators and other consumer goods.
- Medical Equipment and Pharmaceuticals: Affects the supply of essential devices and drugs.
- Steel, Aluminum and Semiconductors: Key sectors for manufacturing and industrial infrastructure.
- Food and Beverages: Products such as fruits, vegetables, beer and tequila will also face higher costs.
According to S&P Global, the automotive and electrical equipment sectors are the most exposed, due to their heavy dependence on trade with the U.S. and the integration of their production chains.
Economic impact of tariffs in Mexico and the U.S.
Mexico is the United States’ main commercial partner, with more than 80% of its exports going to the U.S. market. The imposition of tariffs will generate disruptions in supply chains, especially in sectors such as the automotive sector, where auto parts and components cross the border several times before final assembly. If each customs crossing involves a new tariff, production costs will skyrocket, forcing companies to rethink their manufacturing strategies and reducing investment in Mexico.
Increased production costs will be one of the most immediate effects. Key industries such as automotive, construction and electronics manufacturing depend on imported inputs such as steel and aluminum, which will make Mexican products less competitive in the U.S. At the same time, U.S. manufacturers will also face higher costs when importing components from Mexico, which will affect their profitability and could result in layoffs.
As export costs rise, demand for Mexican products in the U.S. could decline, causing factories to close and reducing manufacturing activity. Analysts warn that these measures could slow Mexico’s economic growth and even push the country into recession. Goldman Sachs has pointed out that the tariffs would also generate inflation in the U.S., affecting consumption and slowing the region’s economy.
In addition, trade uncertainty will discourage foreign and local investment, which will directly impact employment. As companies pass on the cost of tariffs to consumers, prices will rise, eroding the purchasing power of Mexican families and fueling inflation.
Unemployment and wage declines will be inevitable in the hardest hit sectors, such as manufacturing and exports. Job losses and job insecurity will increase poverty and inequality in Mexico. In a scenario of economic crisis, the migratory flow to the U.S. could intensify, aggravating the problem that the tariff policies themselves were intended to contain.
Economic impact of mass deportations
Mass deportations of migrants from the U.S. would have a profound impact on the labor market and economic stability in both countries. In Mexico, the return of thousands of migrants would increase the labor supply, but the demand for jobs would not grow at the same pace, generating unemployment and downward pressure on wages. With the economy already weakened by the contraction of productive sectors, Mexican companies would have difficulty absorbing the new labor force.
Faced with this scenario, some companies may resort to legal mechanisms such as collective economic disputes, which allow for the reduction of personnel or even the closing of operations in the event of a financial crisis.
In the U.S., the massive outflow of migrants would impact essential sectors such as agriculture, construction and services, which depend heavily on this labor force. It is estimated that if 1.3 million migrants were deported, US GDP would fall by 1%; if the figure reached 8.3 million, the contraction could reach 8%, according to data from Natixis.
Another key effect would be higher inflation. With fewer workers in strategic sectors, production costs would rise, making goods and services more expensive. This imbalance between labor supply and demand could generate accelerated inflation, hindering economic stability.
In addition, the reduction of the migrant population in the U.S. would affect the flow of remittances, one of Mexico’s main sources of income. In 2024, the country received US$64.745 billion in remittances, a record amount with an annual growth of 2.3%. If these transfers decrease, millions of Mexican families will see their income diminish, affecting domestic consumption and deepening inequality.
The combination of unemployment, falling remittances and labor precariousness could increase poverty and insecurity in Mexico, driving informality and crime in the absence of economic opportunities.
Since the Trump administration, it has been argued that deportations will free up jobs for U.S. citizens and reduce the burden on the social system. However, most economists warn that these measures will have negative effects on both economies: the contraction of the U.S. labor force will affect productivity, generate inflation and could increase unemployment.
In the long term, the economic impact of a restrictive immigration policy could be even more severe than that of the tariffs imposed on Mexican imports, affecting not only Mexico, but also the U.S. in terms of growth, costs and economic stability.
Social programs for repatriated migrants
Rosa Icela Rodríguez, Secretary of the Interior, announced the implementation of the “Mexico embraces you” program, aimed at guaranteeing the reincorporation of repatriated Mexican nationals into productive and social life in Mexico. This program aims to provide comprehensive support to migrants returning to the country, ensuring their well-being and facilitating their adaptation.
As part of this program, the Mexican Social Security Institute (IMSS by its acronym in Spanish) will affiliate the returnees and their families, granting them access to a series of social security benefits: illness, maternity, occupational hazards, disability, retirement due to unemployment at an advanced age and old age. They will also have access to additional benefits, such as day care for their children.
In addition, migrants will be integrated into the Welfare programs, with the objective of receiving various social assistance benefits. Each repatriated migrant will receive the Bienestar Paisano Card, through which they will receive an economic support of two thousand pesos to cover their immediate needs.
On the other hand, in border cities such as Tijuana (Baja California) and Ciudad Juarez (Chihuahua), there are temporary shelters where deported migrants can receive support and orientation, helping to mitigate the emotional and economic impact of their return to Mexico.
USMCA: Challenges and Uncertainty
The United States-Mexico-Canada-Mexico Agreement (USMCA), in force since July 2020, replaced the former NAFTA and has been instrumental in strengthening trade and investment in the region. Since its implementation, U.S. investments in the Mexican manufacturing sector have increased significantly, thanks to factors such as lower labor costs and the legal certainty offered by the agreement.
However, with Trump’s return to the presidency, the renewal of the USMCA in 2026 presents itself as challenging and uncertain. The treaty provides for a mandatory review on its sixth anniversary. If no extension agreement is reached, the treaty would remain in force until 2036, but without a formal extension, annual reviews would take place, creating uncertainty and potentially discouraging foreign investment.
Trump could use the negotiations to push on non-trade issues, such as migration and fentanyl trafficking, which could delay the treaty’s renewal and compromise the stability of the agreement. Although the USMCA promotes free trade, the agreement does not prevent the U.S. from imposing tariffs for national security reasons, which has allowed Trump to impose tariffs under Section 232 of the Trade Expansion Act of 1962.
Although these measures do not formally violate the treaty, their protectionist effect goes against the spirit of free trade, affecting the competitiveness of Mexican exports. If Trump persists in his approach, the future of the USMCA could become even more uncertain, weakening one of North America’s most important trade agreements.
Conclusion
The imposition of tariffs by the Donald Trump administration represents a significant challenge to the U.S.-Mexico trade relationship, affecting both the stability of the USMCA and the economy of both countries. The protectionist policies and tariffs imposed reflect a strategy of political and economic pressure that fails to recognize the trade interdependence between the two nations.
Although the apparent objective of these measures is to protect U.S. industry, as well as to control migration and drug trafficking, the consequences are likely to be counterproductive. Among the most notable effects will be an increase in inflation, job losses and disruptions in the supply chains of both countries, which could further destabilize the economies involved.
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This document is published solely for informational and general disclosure purposes for clients and colleagues of Acedo Santamarina, S.C. It does not constitute legal advice or opinion. Any questions regarding the matters addressed in this publication may be directed to any of our attorneys or to any other Acedo Santamarina, S.C. attorney with whom you have consulted in the past on similar matters.
