Trump’s 25% Tariffs on Mexico, Canada Spark Concerns

US President-elect Donald Trump announced plans to impose a 25% tariff on all imports from Mexico and Canada, citing unchecked migration and drug trafficking as the catalysts. The proposed measure, which he says would be enacted through an executive order on his first day in office, has sparked widespread concern over its economic and diplomatic ramifications.

The Tariff Announcement

Trump wrote on his social media platform, Truth Social, that Mexico and Canada must take immediate action to stem the flow of drugs, particularly fentanyl, and illegal immigration into the United States. He emphasized that the tariffs would remain in place until these issues are resolved, warning of the “very big price” both nations would face otherwise.

This announcement coincided with market volatility, as the US dollar surged by 1% against the Canadian dollar and 2% against the Mexican peso.

Mexico, the United States, and Canada are critical trade partners under the USMCA, with deeply integrated supply chains across various sectors. According to the US Census Bureau and NAICS classifications, these include:

• Automotive Industry: Mexico is a key player in United States automotive manufacturing, with significant cross-border trade in motor vehicles and parts.

• Plastics and Chemicals: Mexico depends on US exports of plastics materials, while the United States relies on Mexico for finished plastic products.

• Agriculture and Energy: US corn and natural gas are vital to Mexico’s food and energy sectors.

Imposing tariffs would disrupt these sectors, doubling operational costs for numerous companies. Experts estimate a loss of 400,000 jobs and a significant slowdown in the North American automotive supply chain, explains Mexico’s Minister of Economy, Marcelo Ebrard.

Sheinbaum Responds

Mexico’s President Claudia Sheinbaum, in a letter sent to Trump, countered the intent of tariffs, highlighting the economic interdependence and mutual benefits of cooperation. She warned that retaliatory tariffs could harm both economies, noting that “countermeasures will follow, jeopardizing the interests of shared businesses.”

Sheinbaum also defended Mexico’s efforts to combat fentanyl trafficking, citing the confiscation of over 10,340 firearms and the arrest of 15,640 individuals connected to drug crimes in 2024. Additionally, she proposed a labor mobility framework to address migration issues while criticizing Trump’s narrative as overly simplistic, as previously reported by MBN.

Sheinbaum also criticized Trump’s assertion that China is using Mexico as a conduit to export products into the United States. She pointed out that, despite some Chinese goods being sold in Mexico, the trade between Mexico and China does not serve as a significant vehicle for exporting Chinese products to the United States. She argued that Mexico has a plan in place to reduce its reliance on Chinese imports by shifting more production to domestic and North American manufacturers. She adds that this effort is being spearheaded by the Mexican government, which is working with both Mexican and US businesses to replace Chinese products with locally produced alternatives.

She highlighted Mexico’s strategy to gradually reduce its dependency on Chinese exports, particularly in sectors like automotive manufacturing. She referenced data showing that only 7% of parts in vehicles manufactured in Mexico, whether for domestic use or export to the United States, are sourced from China. 

China’s Role and Response

In response to Sheinbaum’s remarks, Chinese Foreign Ministry Spokesperson Mao Ning reaffirmed China’s stance on its trade with Mexico. Ning emphasized that China has been a reliable trade partner for Mexico, supporting its manufacturing sector and contributing to its economic competitiveness. 

Trump also blamed China for contributing to the fentanyl crisis, announcing a 10% tariff on Chinese imports if the flow of drugs continues. In response, Ning also defended China’s record on counter-narcotics efforts, adding that the country continues to cooperate with the United States in its fight against the drug trade. She also asserted that China’s trade with Mexico is based on international rules and market principles, with mutual benefit being a core principle of their bilateral relationship.

Economic Projections and Regional Stability

Economic analysts, including HR Ratings and Moody’s, have downgraded Mexico’s outlook to negative, citing potential impacts of Trump’s policies. Mexico’s Economy Minister Marcelo Ebrard recalls the historical consequences of trade tariffs, noting their inflationary effects on consumer goods and economic growth.

Sheinbaum proposed a vision for a “prosperous and competitive North America,” urging strategic cooperation on security, migration, and economic development. The region accounts for 30% of global GDP, with intraregional trade reaching US$1.77 trillion in the first nine months of 2024, MBN reported.

Despite the benefits of trilateral trade, some politicians in Canada are calling for a trade deal that excludes Mexico. “There is a clear consensus that everyone agrees that we need a bilateral trade deal with the United States and a separate bilateral trade deal with Mexico. We know Mexico is bringing in cheap Chinese parts, slapping made in Mexico stickers on, and shipping it up through the United States and Canada, causing American jobs to be lost and Canadian jobs. We want fair trade,” Premier of Ontario, Doug Ford, told reporters.

Ford has also accused Mexico of allowing itself to become a backdoor for Chinese cars, auto parts, and other products, MBN reported.

US Democrats Introduce Legislation to Counteract Tariffs

US Democrats have been pushing a bill to curb the president’s power to impose import tariffs under the pretense of a national emergency. The Prevent Tariff Abuse Act, aims to prevent a US president from bypassing Congress when implementing broad tariffs. US Congresswoman Suzan DelBene, says that these measures would increase prices on consumer goods by US$2,600 to US$4,000 annually for the average US household, as MBN previously reported. 

Potential Economic Effects

According to Ana Gutiérrez, Foreign Trade and Jobs Market Coordinator, Mexican Institute for Competitiveness (IMCO), retaliatory tariffs from Mexico could result in a 4% decrease in GDP, with medium-income households facing a loss of 7% of their income. This would exacerbate the financial strain for many families in both countries.

However, some argue that the talk of tariffs may be overblown. “We dealt with this the last time Trump was in office. There will not be tariffs on Mexico or Canada. Things will calm down by the time he’s in office. This is not a new tactic. Trade with China is still on the way out and nearshoring will continue trending in the right direction. Blanket tariffs on corporations will be passed along to consumers and the American people will not react well at all if that actually happens,” says Matt Silver, CEO, Cargado.

Kenneth Smith, Partner, AGON Economía/Derecho/Estrategia, shares that Mexico’s initial steps, such as sending a letter to the US administration, were a positive start. While acknowledging the potential for disruption from Trump’s tactics, such as affecting currency and forcing Mexico and Canada to negotiate quickly. Smith also suggested that Mexico should engage more deeply with Trump’s transition team. The objective would be to establish clear frameworks, especially in terms of how tariff policies could impact the 2026 trade agreement review. This strategy aligns with Mexico’s interest in reducing reliance on Chinese imports, signaling a shift that could benefit both the United States and Mexico by encouraging trade diversification.

Trump and Sheinbaum Talk

On Wednesday, Trump and Sheinbaum discussed migration and the flow of fentanyl into the United States — two of the main issues driving Trump’s policy proposals. Following the call, Trump wrote on Truth Social:

“Just had a wonderful conversation with the new President of Mexico, Claudia Sheinbaum Pardo. She has agreed to stop Migration through Mexico, and into the United States, effectively closing our Southern Border. We also talked about what can be done to stop the massive drug inflow into the United States, and also, US consumption of these drugs. It was a very productive conversation! Mexico will stop people from going to our Southern Border, effective immediately. This will go a long way toward stopping the illegal invasion of the United States. Thank you!”

In response, President Sheinbaum shared her perspective on the discussion:

“I had an excellent conversation with President Donald Trump. We addressed Mexico’s strategy regarding the migration phenomenon and emphasized that no caravans are reaching the northern border because they are being addressed within Mexico. We also discussed strengthening collaboration on security within the framework of our sovereignty and our ongoing campaign to prevent fentanyl consumption in Mexico. Our approach is to build bridges between governments and communities, not to close borders.”