With the reconfiguration of international supply chains, Mexico has gained importance as a location for new foreign investments. The country has been able to benefit from nearshoring, that is, the relocation of services or production processes closer to consumer markets. This is associated with lower logistics costs and often better management of supplier relationships. However, this boom in investments has abated due to various uncertainties – not least being Washington’s threats to raise tariffs, which burdens the economic prospects associated with nearshoring. Mexican President Claudia Sheinbaum is attempting to counter this trend, but in view of the increasingly urgent demand by the United States for third countries to adopt an anti-Chinese course, Mexico is at risk of being caught in the trap of “security-shoring” and losing its autonomous room for manoeuvre. This is already forcing Mexico – as well as its economic partners who have invested there – to realign their production processes.
US President Donald Trump initially imposed tariffs of 25 per cent on Canadian and Mexican exports to the United States in early February based on the International Emergency Economic Powers Act (IEEPA), then exempted vehicles produced in Mexico and Canada that are delivered to the United States from the tariffs. Days later he postponed the implementation of the tariffs on almost all goods for four weeks until 2 April. On this “Liberation Day”, Mexico was not – unlike countries worldwide – subject to a general tariff rate of 10 percent. The exemption applies to all products that comply with the free trade agreement known as the United States–Mexico–Canada Agreement (USMCA). Goods beyond that are subject to different tariff rates.
The announcement of blanket tariffs on imported steel and aluminium by President Trump has had a wide range of effects. Above all, it fuels a climate of uncertainty among all economic actors, as they cannot rely on stable framework conditions in the medium term. Legally, Trump used an emergency order as the basis. Its activation was justified by referencing the growth in the smuggling of the designer drug fentanyl into the United States, and the persistently powerful role of organised crime in the neighbouring country. President Sheinbaum promised to deploy 10,000 soldiers to Mexico’s northern border to stem the influx of drugs and undocumented migrants. In addition, 29 leaders in the drug trade have been arrested and extradited to the United States. However, these measures have not succeeded in reversing the imposed actions.
The disruptions associated with these uncertainties affect both trade and investments, which are of central importance to Mexico due to its favourable production conditions (especially low wages) and were the main reason that the country overtook China in 2023 as the most important trading partner of the United States.
The protectionism being pushed by Trump is having a major impact on Mexico’s bilateral relations with the United States, and will continue to do so for the foreseeable future. Furthermore, the Trump administration has intertwined trade, migration, and security policy issues – a tactic that runs counter to the efforts of the Mexican government to keep these policy areas separate and negotiate them according to their respective logics. The USMCA, which was negotiated during the first Trump administration and came into force in July 2020 with Mexico and Canada as US partners, provided the appropriate framework for this. However, the future of this agreement, which is to be reviewed in 2026, is in question since unilateral tariff decrees have undermined its validity. The Mexican automotive industry is being hit particularly hard by the tariffs. Trade in motor vehicles accounts for 22 per cent of total goods traffic under the agreement and is thus considered the most critical sector. Of the 3.98 million vehicles produced in Mexico in 2024, 3.47 million were exported abroad, underlining Mexico’s importance as a key hub for the sector.
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