From Steel to Autos: Breaking Down Trump’s 2025 Tariff Shock

Since early 2025, a series of tariffs imposed by the United States have disrupted key trade sectors critical to Mexico’s economy. Targeting steel, aluminum, automotive products, and general imports, these measures have challenged Mexico’s export markets and introduced uncertainty for investors. While exemptions under the USMCA have offered some relief, Mexico continues to negotiate with US officials to protect its industries and jobs. 

Back in February, just days after his inauguration, President Donald Trump imposed 25% tariffs on imports from Mexico and Canada, citing both countries' alleged failure to adequately address illegal migration and fentanyl trafficking into the United States. The move raised concerns about the stability of North American trade relations. However, Trump later announced an exemption for products that comply with the terms of the USMCA, signaling a partial concession. However, the 25% tariffs are still in place for the Mexican products imported into the United States without an USMCA certificate of origin.

Mexico interpreted the exemption as a positive gesture and a sign of a continued constructive relationship with Washington. In contrast, Canada took a firmer stance. Prime Minister Mark Carney responded to the tariff announcement by stating that Canada would proceed with retaliatory measures to protect its economic interests and uphold fair trade practices.

Later, effective March 12, a 25% import tariff was applied to all steel and aluminum products entering the United States, including items manufactured from these metals. On June 4, the rate was increased to 50%. The United Kingdom received a temporary exemption under a bilateral agreement signed in May, which could eliminate the tariffs entirely. However, Trump warned that the full rate may be reinstated if the agreement is not fully implemented by July 9.

The United States remains one of the largest importers of steel globally, sourcing a significant portion of its supply from Canada, Brazil, Mexico, and South Korea. In June, Mexico reported a sharp 60% drop in steel exports to the United States during April, prompting an urgent appeal to Washington to reconsider the newly imposed 50% tariff. President Claudia Sheinbaum described the measure as unjustified and damaging to bilateral trade.

The Mexican government also announced it is actively coordinating with national steel and aluminum industry chambers to address the issue. Minister of Economy Marcelo Ebrard is leading negotiations with US officials, including Howard Lutnick and Jamieson Geer, with the aim of securing Mexico’s exemption from the tariff and protecting domestic employment and industrial output.

“Our priority is clear: we will defend jobs, support our industry, and demand fair trade conditions,” said Sheinbaum. “We seek a comprehensive agreement with the United States that resolves current tensions and ensures long-term stability.” She also warned that, if negotiations fail, Mexico is prepared to implement countermeasures to safeguard its strategic sectors.

“Liberation Day” Tariffs
On April 2, President Trump announced a baseline 10% tariff on imports from most countries on what he referred to as “Liberation Day,” as a way of addressing what Trump called injustices toward the United States in terms of trade imbalances. Just a week later, on April 9, he revealed substantially higher tariffs targeting 60 countries deemed the “worst offenders” in trade relations. A 90-day deferral was granted, during which all affected nations, except China, remained subject only to the 10% baseline tariff.

Claudia Sheinbaum explained that, as members of the USMCA free trade agreement, Mexico and Canada were exempt from any additional tariffs announced during Trump’s speech. While the average tariff rate on US imports was set to surge from 2% to 29%, Mexico avoided these measures on USMCA-compliant exports. “Today, Mexico benefits from a preferential treaty,” said Ebrard. 

Effective April 2, however, a 25% tariff was also imposed on foreign-manufactured vehicles entering the United States. This measure was expanded on May 3 to cover engines and other automotive components. However, on April 29, Trump adjusted the policy to mitigate its impact on US-based automakers.

Mexico announced last month that vehicles assembled in Mexico and exported to the United States would face an average tariff rate of approximately 15%, rather than the full 25%, due to Washington’s application of content-based tariff reductions for domestically sourced components. Despite this relief, automakers continue to experience rising cost pressures linked to the tariffs. For example, Ford Motor recently increased prices on select models, attributing the hikes to the additional expenses generated by the tariff measures. In May, Ford projected that these tariffs would reduce its adjusted earnings by US$1.5 billion.

Only last week, Trump indicated that tariffs on imported automobiles could increase soon, a move aimed at encouraging automakers to expand domestic production. “I might go up with that tariff in the not too distant future,” Trump said during a White House event. “The higher you go, the more likely it is they will build a plant here.”

What Do These Tariffs Mean for Mexico?

In 2024, Mexico maintained its position as a top global investment destination in 2024, ranking 11th worldwide. According to the United Nations Conference on Trade and Development (UNCTAD), the country attracted US$37 billion in FDI, an increase from US$36 billion in 2023, driven by strong performance in manufacturing and logistics sectors. However, the sharp policy shifts in the United States now threaten to undermine this momentum. According to the Ministry of Economy, foreign direct investment (FDI) in Mexico’s industrial sector fell by 17.5% in 1Q25, dropping from US$14.81 billion in 2024 to US$12.22 billion.

All five pillars of Mexico’s industrial sector, manufacturing, mining, electricity, water, and construction, recorded contractions. Construction suffered the steepest decline, plunging 207% despite major upcoming events like the 2026 FIFA World Cup. Electricity and water followed with a 47.8% decline, while manufacturing and mining contracted by 28.9% and 9.4%, respectively.

These figures suggest more than a temporary slowdown; they reflect mounting investor unease. According to the Bank of Mexico, threats of escalating tariffs from Washington have caused many companies to pause or delay nearshoring initiatives. Concerns over regulatory instability and a volatile trade environment have prompted more cautious decision-making, with several industrial projects placed on hold. This has especially affected the construction of facilities for export-oriented manufacturing, even as global demand for expanded operational capacity remains high.

Despite these headwinds, investment has not come to a standstill. Just yesterday, Ford announced new commitments in Mexico as part of its 100th anniversary celebration in the country. The automaker will expand its engineering laboratories at the Global Technology and Business Center (GTBC) in Naucalpan, State of Mexico. CEO Jim Farley emphasized that the dedication of Ford’s dealers and employees in Mexico continues to drive the company’s long-term investment strategy. Additionally, through Ford Philanthropy, the company pledged an extra US$2 million to its Education on the Move program, supporting students from elementary through university in Ford-affiliated schools.

Other major players are also betting on Mexico’s potential. South Korean firm Seojin Mobility recently launched operations in Nuevo Leon with the opening of its plant in Escobedo. The company invested US$160 million in its first phase to manufacture key components for electric motors. More significantly, it plans to inject an additional US$1.14 billion by 2028, reinforcing Nuevo Leon’s growing role as a strategic hub for the electric vehicle transition.

Looking ahead, analysts remain optimistic about Mexico’s long-term outlook. Jacob Shapiro, Director of Research, The Bespoke Group, emphasizes that tariff threats should not be a major concern, as Mexico holds promising opportunities with nearshoring. “We are still in the very, very early stages of nearshoring. This is a process that is going to unfold over decades, ultimately a very positive opportunity for Mexico and for companies that are ahead of the curve.” he states. “Whatever happens, Mexico stands to be a winner in these trade wars; companies may not be relocating all their operations immediately, but many are exploring their options, comparing pricing and incentives if they move production to Mexico.”

Follow our MBS 2025 tag and don’t miss our coverage leading to Mexico Business Summit 2025 on October 28–29, 2025. On Thursday, we will delve into how the government plans to leverage Plan México to boost Mexico's competitiveness as an investment hub. 

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