Is Trump Really Going To Impose Tariffs On Mexico?

At the start of his second term in office, Donald Trump is threatening to slap new tariffs on Mexico’s exports.  

When it comes to Mexico, Trump believes he has an unfair advantage.

He knows that Mexico has invested heavily in export-focused industries.

Exports now account for over a third of Mexico’s GDP and over 80% of Mexico’s exports go to the US. 

On the other hand, US exports of goods to Mexico account for only about 1% of the US’s GDP.

Trump knows that on any given day he could provoke an recession in Mexico by stopping cargo trucks from crossing the US-Mexico border. 

The asymmetry inherent in the US-Mexico relationship presents Trump with an opportunity to try and bully Mexico.

But, even though Mexico is vulnerable when it comes to Trump’s latest tariff threats, unlike countries like Colombia and Ukraine, Mexico also has pressure points it can look to push during negotiations.

Officials in Mexico’s government knows that Trump faces a very complex task of negotiating deals with Mexico on a wide range of cross-border issues from trade and investment, to security and organized crime, to migration flows.

Mexico can also count on behind-the-scenes advocacy from major U.S. corporations.

When we look at the data on vehicle exports from Mexico to the US, something that jumps out is the fact that Ford and GM are by far the biggest exporters of cars from the U.S. 

Overall, Mexico is also the biggest buyer of goods from California and Texas, the two biggest state economies in the US. So, politicians in these two powerhouse states may also be working to communicate their constituents’ priorities to members of the Trump team. 

A key point here is that a major disruption to the existing trade relationship would hurt both Mexico and the US. 

We have already seen financial markets in the US shaken by the Trump’s announcement to carry through with tariffs on Mexico.

If Trump’s tariff threats end up causing a significant sell off in the S&P 500 or provoke a spike in inflation, consumers and investors in the US will very quickly join the list of vocal stakeholders voicing their discontent with tariffs.

Executives managing operations in Mexico need to know: Does Trump want to make a deal with Mexico to avert tariffs?

The way Trump and his advisors talk about tariffs they seem to zigzag between describing the tariffs as a punitive measure for fentanyl inflows and a viable long-term economic strategy.

It’s still unclear if Mexico can really make a deal with Trump.

Are the tariffs just a tactic for bullying Mexico during broader negotiations? Or are we starting an improvised experiment with radically shaking up the global trade system?

Until this question is answered, some companies may be hesitant to invest in Mexico.

For executives looking at investing in nearshoring in Mexico, the political risk outlook at the start of the Trump 2.0 era is a “red light” level of risk. Once (if) the tariff question is resolved, over the medium term the risk level might be “yellow light” level. Foreign investors can proceed with caution.

For the medium term, the key question is whether it’s a flashing yellow light, a warning sign, or whether executives may start to fear that the yellow light will switch to red and investments in Mexico are going to start looking problematic.

According to the Global Economic Policy Uncertainty Index, right now it’s uncertainty about economic policy around the globe is at an all-time high.  

In early 2025 we were already seeing some evidence that business leaders and consumers in the US were switching to a cautious “wait and see” mode regarding decisions on spending and the stock market in the US has taken some hits after Trump’s comments about tariffs.

As Trump takes action rather than just making threats financial markets are reacting negatively.  

So, there are still a lot of questions about whether Trump’s 2025 tariff threats are just posturing or if they represent a fundamental shift in US policies and priorities. 

Trump’s position on this issue is now the number one political risk for Mexico.

Latin American Lens's Director of Research, Nathaniel Parish Flannery, discusses the Trump tariff threat on episode 25 of The Modern Mexico Podcast.

Contact us to discuss how we can help advise your company on political risk issues in Mexico and Latin America. We are also always looking to connect with executives and entrepreneurs who want to share their expertise with a wider audience through opinion columns, online content, and podcasts.