Washington:
US President Donald Trump has threatened to slap a 25-percent tariff on Mexican items on February 1, a transfer that analysts say would deal a heavy blow to Latin America’s second-largest financial system.
Mexican President Claudia Sheinbaum referred to as for “a cool head” in response to Trump’s commerce and different coverage bulletins.
What can be the implications for Mexico if its largest buying and selling companion imposes tariffs?
– Would tariffs tip Mexico into recession? –
Mexico’s financial system is “arguably probably the most weak” to US commerce protectionism, based on London-based consultancy agency Capital Economics.
Mexico changed China in 2023 as the most important buying and selling companion with america, which buys 83 p.c of its exports.
The electronics and automobile sectors can be significantly uncovered to tariffs as a result of half of their demand comes from america, Capital Economics stated.
The automobile sector alone generates 5 p.c of Mexico’s nationwide financial output, it famous.
The 2 sectors are additionally “those the place US safety considerations are excessive about Chinese language tech getting into the nation.”
In accordance with Oxford Economics, one other advisory agency, US tariffs and anticipated Mexican retaliation would weaken the Mexican peso, drive up inflation and “may push Mexico right into a technical recession.”
Tourism, nonetheless, may gain advantage if a weaker peso makes holidays in Mexico extra enticing, analysts stated.
– What leverage does Mexico have? –
Trump stated that he was pondering of enacting the tariffs on February 1 due to their failure to cease unlawful immigration and drug trafficking into america.
His threats are aimed toward “exerting stress and attempting to acquire concessions,” based on former Mexican commerce negotiator Kenneth Smith.
Throughout his first time period (2017-2021), Trump efficiently used the specter of tariffs to stress Mexico to cut back the variety of Central American migrants arriving on the southern US border.
Arantza Alonso, an analyst in danger intelligence firm Verisk Maplecroft, stated that “by pushing again the imposition of tariffs till February 1, Trump is giving Mexico time to make concessions.”
Capital Economics thinks that cooperation on tackling flows of migrants and medicines may “be an efficient bargaining chip to stave off tariffs.”
Shopping for extra items from america and fewer from China may additionally assuage america, it stated.
Retaliatory agricultural tariffs that may hit Republican states like Texas, Nebraska, Iowa and the Dakotas specifically are an alternative choice, Alonso stated.
– Is free commerce deal useless? –
In principle, Mexico and Canada must be protected towards US tariffs by a regional free commerce settlement that was renegotiated beneath Trump.
“Imposing tariffs on all merchandise violates the treaty,” stated Diego Marroquin, a global commerce professional on the Wilson Middle, a Washington-based assume tank.
America-Mexico-Canada Settlement (USMCA), which changed the earlier NAFTA accord on July 1, 2020, is because of be reviewed by July subsequent 12 months.
“This evaluate now appears to be like poised to change into extra of a full-fledged renegotiation as President Donald Trump seeks to leverage the discussions to reshape North American commerce, migration, and safety, in addition to deal with China’s rising affect in regional provide chains,” Council on Overseas Relations specialists Shannon Ok. O’Neil and Julia Huesa wrote in a briefing observe.
In accordance with the Mexican political danger consultancy EMPRA, indicators that Trump needs an early renegotiation counsel that he doesn’t plan to kill the USMCA.
“Trump stays dedicated to securing extra favorable phrases for the US, significantly with regard to the auto trade,” it informed purchasers.
Sheinbaum not too long ago hailed the USMCA as “among the finest commerce agreements in historical past” and “the one method we are able to compete with Asian international locations, significantly China.”
She introduced a plan to exchange Chinese language imports with domestically produced items — an obvious bid to ease Washington’s considerations that Chinese language corporations need to use Mexico as a backdoor into america.
(Aside from the headline, this story has not been edited by NDTV workers and is revealed from a syndicated feed.)