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 accomplice imposes tariffs?
– Would tariffs tip Mexico into recession? –
Mexico’s financial system is “arguably probably the most weak” to US commerce protectionism, in line with London-based consultancy agency Capital Economics.
Mexico changed China in 2023 as the biggest buying and selling accomplice with america, which buys 83 p.c of its exports.
The electronics and car sectors can be significantly uncovered to tariffs as a result of half of their demand comes from america, Capital Economics mentioned.
The car 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, nevertheless, may gain advantage if a weaker peso makes holidays in Mexico extra enticing, analysts mentioned.
– What leverage does Mexico have? –
Trump mentioned 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 strain and making an attempt to acquire concessions,” in line with former Mexican commerce negotiator Kenneth Smith.
Throughout his first time period (2017-2021), Trump efficiently used the specter of tariffs to strain Mexico to scale back the variety of Central American migrants arriving on the southern US border.
Arantza Alonso, an analyst in danger intelligence firm Verisk Maplecroft, mentioned 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 mentioned.
Retaliatory agricultural tariffs that might hit Republican states like Texas, Nebraska, Iowa and the Dakotas particularly are another choice, Alonso mentioned.
– Is free commerce deal useless? –
In concept, Mexico and Canada ought to be protected towards US tariffs by a regional free commerce settlement that was renegotiated beneath Trump.
“Imposing tariffs on all merchandise violates the treaty,” mentioned Diego Marroquin, a global commerce knowledgeable on the Wilson Middle, a Washington-based assume tank.
The USA-Mexico-Canada Settlement (USMCA), which changed the earlier NAFTA accord on July 1, 2020, is because of be reviewed by July subsequent yr.
“This evaluate now seems to be poised to develop 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 handle China’s rising affect in regional provide chains,” Council on Overseas Relations specialists Shannon Ok. O’Neil and Julia Huesa wrote in a briefing word.
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 car trade,” it informed shoppers.
Sheinbaum lately hailed the USMCA as “among the finest commerce agreements in historical past” and “the one method we are able to compete with Asian nations, significantly China.”
She introduced a plan to interchange Chinese language imports with domestically produced items — an obvious bid to ease Washington’s considerations that Chinese language firms need to use Mexico as a backdoor into america.
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