News
Trump Tariff Threat ‘Chilling Signal’ for Mexico Economy
(Bloomberg) -- Even as Mexico President Claudia Sheinbaum attempts to quell concerns over Donald Trump’s threat of 25% tariffs, economists are looking glumly at the trouble ahead should the US president-elect actually follow through.
Analysts have been quick to revise their 2025 forecasts, now expecting a fourth straight year of diminishing growth and far less foreign investment. Mexico’s central bank said Wednesday that any predictions would be premature, but it’s clear that just the talk of levies is enough to trigger fears of economic calamity. In all, such steep tariffs would risk nearly 11% of Mexico’s gross domestic product, according to an estimate by Bloomberg Economics.
Moody’s Analytics more than halved its estimate for economic growth next year to 0.6%, which would make it Mexico’s worst year since the pandemic-related recession in 2020. Analysts said that the impact would be felt in “trade, investment and remittances, while the financial sector will be shaken by risk aversion and volatility.” S&P Global Ratings was slightly less grim, bringing down its projection for 2025 growth to 1.2% from 1.5% citing “higher uncertainty” in the trade relationship with the US.
“Even the threat of tariffs sends a chilling signal to like Mexico’s investment climate. There’s going be less appetite for investors to bet on Mexico and put money especially into manufacturing,” said Diego Marroquin, a scholar of North American trade at The Wilson Center. “Mexico will have to act preemptively on issues that fall outside the trade agenda for the US to sit down at the table.”
Trump has said he would impose levies should Mexico — and Canada — not stem the flow of fentanyl and irregular border crossings. Sheinbaum sent a letter to Trump about Mexico’s success in cracking down on drugs and then jumped on the phone with him on Wednesday, telling him Mexico was already preventing migrants from reaching the US border. It was a “wonderful conversation,” Trump said later Wednesday in a post on Truth Social.
“She has agreed to stop Migration through Mexico, and into the United States, effectively closing our Southern Border,” Trump wrote in the post. “We also talked about what can be done to stop the massive drug inflow into the United States, and also, U.S. consumption of these drugs.”
The peso strengthened 0.5% to 20.49 per dollar following Trump’s comments.
Sheinbaum had previously said that her government was outlining what retaliatory tariffs could look like, but has yet to spell out specifics. Canada is already in the same process, and is trying to determine what items would be targeted, the AP reported.
What Bloomberg Economics Says
“We see growth slowing to 1.0% in 2025 from 1.3% expected this year, dragged by falling private investment and tighter fiscal policy. Our forecast assumes higher exports and no tariffs on US imports from Mexico until 2026. Uncertainty is high, with domestic and external risks biased to the downside.”
-Felipe Hernandez, Latin America economist
For a full analysis, click here
Even if the two countries end up negotiating a deal, it could damage the investments that Mexico had assumed were coming its way after companies stood on the sidelines ahead of the US election. Mexico has said it’s surpassed China as the US’s No. 1 trading partner, and Sheinbaum has depicted manufacturing as an engine of growth in Mexico. Top officials in her government have been advocating for a close relationship with business leaders and an expansion of industrial parks.
If Trump is bluffing, things might look rosier for Mexico. Bank of America’s Mexico chief said he didn’t think Trump would ever impose tariffs.
“Our base scenario is that we don’t see there will be tariffs in North America by the end of the whole process,” Emilio Romano told reporters in Mexico City. “That’s because they’ll affect the economies of all the countries. A tariff on Mexico is a tariff on American companies.”
Franklin Templeton’s co-directors of investments in Mexico predicted on Wednesday that if Trump did follow through, he could lift any tariffs in the short term. That would open Mexico’s door to even more private investment than this year.
“You have to be intelligent in a tariff war. The US could say, ‘25% on everything,’ and Mexico could put targeted tariffs on sectors that have a strong lobbying presence in the US that could have a group that pressures Trump,” said Luis Gonzali, chief investment officer at Franklin Templeton Mexico. “It’s probable that in the short term he will impose tariffs, but they can’t last.”
Mexico’s central bank is studying the possible scenarios and inflationary impact of Trump’s tariffs threat, Governor Victoria Rodriguez Ceja said during the presentation of a quarterly report on Wednesday. The bank raised its growth forecast for this year to 1.8% from 1.5% previously and maintained its 2025 forecast at 1.2%. Rodriguez said the bank still expects the inflation environment to allow for future rate cuts, from the current 10.25%.
Rodriguez declined to specify how much Trump’s promises of more aggressive tariffs could affect inflation and economic growth in Mexico, but assured that Banxico, as the Mexican central bank is known, will remain attentive to the measures that are actually decided by the incoming US government.
“There is uncertainty about the policies that will be implemented,” Rodriguez said. “It would be premature to talk about the possible implications.”
--With assistance from Alex Vasquez, Carolina Millan and Marcus Wong.
(Updates with Trump response on Truth Social in fifth and sixth paragraph.)