Washington:

US President Donald Trump has threatened to slap a 25-percent tariff on Mexican goods on February 1, a move that analysts say would deal a heavy blow to Latin America’s second-largest economy.

Mexican President Claudia Sheinbaum called for “a cool head” in response to Trump’s trade and other policy announcements.

What would be the implications for Mexico if its biggest trading partner imposes tariffs?

– Would tariffs tip Mexico into recession? –

Mexico’s economy is “arguably the most vulnerable” to US trade protectionism, according to London-based consultancy firm Capital Economics.

Mexico replaced China in 2023 as the largest trading partner with the United States, which buys 83 percent of its exports.

The electronics and vehicle sectors would be particularly exposed to tariffs because half of their demand comes from the United States, Capital Economics said.

The vehicle sector alone generates five percent of Mexico’s national economic output, it noted.

The two sectors are also “the ones where US security concerns are high about Chinese tech entering the country.”

According to Oxford Economics, another advisory firm, US tariffs and expected Mexican retaliation would weaken the Mexican peso, drive up inflation and “could push Mexico into a technical recession.”

Tourism, however, could benefit if a weaker peso makes vacations in Mexico more attractive, analysts said.

– What leverage does Mexico have? –

Trump said that he was thinking of enacting the tariffs on February 1 because of their failure to stop illegal immigration and drug trafficking into the United States.

His threats are aimed at “exerting pressure and trying to obtain concessions,” according to former Mexican trade negotiator Kenneth Smith.

During his first term (2017-2021), Trump successfully used the threat of tariffs to pressure Mexico to reduce the number of Central American migrants arriving at the southern US border.

Arantza Alonso, an analyst at risk intelligence company Verisk Maplecroft, said that “by pushing back the imposition of tariffs until February 1, Trump is giving Mexico time to make concessions.”

Capital Economics thinks that cooperation on tackling flows of migrants and drugs could “be an effective bargaining chip to stave off tariffs.”

Buying more goods from the United States and fewer from China could also assuage the United States, it said.

Retaliatory agricultural tariffs that would hit Republican states like Texas, Nebraska, Iowa and the Dakotas in particular are another option, Alonso said.

– Is free trade deal dead? –

In theory, Mexico and Canada should be protected against US tariffs by a regional free trade agreement that was renegotiated under Trump.

“Imposing tariffs on all products violates the treaty,” 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 accord on July 1, 2020, is due to be reviewed by July next year.

“This review now looks poised to become more of a full-fledged renegotiation as President Donald Trump seeks to leverage the discussions to reshape North American trade, migration, and security, as well as address China’s growing influence in regional supply chains,”  Council on Foreign Relations experts Shannon K. O’Neil and Julia Huesa wrote in a briefing note.

According to the Mexican political risk consultancy EMPRA, signs that Trump wants an early renegotiation suggest that he does not plan to kill the USMCA.

“Trump remains committed to securing more favorable terms for the US, particularly with regard to the automobile industry,” it told clients.

Sheinbaum recently hailed the USMCA as “one of the best trade agreements in history” and “the only way we can compete with Asian countries, particularly China.”

She 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.

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)

U.S. President-elect Donald Trump. File
| Photo Credit: Reuters

President-elect Donald Trump on Saturday (November 30, 2024) threatened 100% tariffs against a bloc of nine nations if they act to undermine the U.S. dollar.

His threat was directed at countries in the BRICS bloc, which consists of Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran and the United Arab Emirates.

Turkey, Azerbaijan and Malaysia have applied to become members, and several other countries have expressed interest in joining.

While the U.S. dollar is by far the most-used currency in global business and has survived past challenges to its pre-eminence, members of the alliance and other developing nations say they are fed up with America’s dominance of the global financial system.

Mr. Trump, in a Truth Social post, said: “We require a commitment from these Countries that they will neither create a new BRICS currency, nor back any other currency to replace the mighty U.S. Dollar or, they will face 100% Tariffs, and should expect to say goodbye to selling into the wonderful U.S. Economy.”

At a summit of BRIC nations in October, Russian President Vladimir Putin accused the U.S. of “weaponising” the dollar and described it as a “big mistake.”

“It’s not us who refuse to use the dollar,” Mr. Putin said at the time. “But if they don’t let us work, what can we do? We are forced to search for alternatives.”

Russia has specifically pushed for the creation of a new payment system that would offer an alternative to the global bank messaging network, SWIFT, and allow Moscow to dodge Western sanctions and trade with partners.

Mr. Trump said there is “no chance” BRIC will replace the U.S. dollar in global trade and any country that tries to make that happen “should wave goodbye to America.”