Mexico vows to retaliate with its own trade barriers, putting US joint ventures at risk

• Donald Trump said he'd put in place 25% tariffs on Mexican imports on his first day back in the White House.
• Mexico's president said her country would retaliate, which she said would impact joint ventures.
• In the first quarter of 2024, the US accounted for 82.7% of Mexico's exports.

Mexico's President Claudia Sheinbaum Pardo said her country would go after the US with tariffs of its own if President-elect Donald Trump pushed ahead with new tariffs on goods from the country, which would damage joint venture partnerships.

On Monday, Trump took to his Truth Social platform to announce that he would sign an executive order on his first day back in office to impose a 25% tariff on all goods from Mexico and Canada, and an additional 10% tariff on imports from China.

He said the tariffs would "remain in effect until such time as Drugs, in particular, Fentanyl, and all Illegal Aliens stop this Invasion of our Country!"

During a press conference on Tuesday, Sheinbaum said that "one tariff will be followed by another, and so on, until we put joint ventures at risk."

She pointed to General Motors, Stellantis, and Ford Motor Company as Mexico's main exporters to the US and as businesses that tariffs could endanger.

"Why tax them and put them at risk?" Sheinbaum said, adding that tariffs "would trigger inflation and job losses in the US and Mexico."

About 76% of the vehicles manufactured in Mexico are exported to the US.

On Tuesday, the Mexican peso hit its lowest level against the dollar since March 2022, dropping by more than 2% in one day.

Gabriela Siller, director of economic analysis at the financial group Banco Base, said Trump may have thrown the tariff threat out there in a similar offhand way he has in the past.

"But Mexico's response, that we're going to respond to you with tariffs, that will make Trump really impose them," she told the Associated Press.

Mexico is the world's largest exporter to the US, and its economy is heavily dependent on its northern neighbor.

In the first quarter of 2024, the US accounted for 82.7% of Mexico's exports, and trade between the two countries is expected to increase by 300% over the next 10 years.

As a result, Mexico's "ability to walk away from President-elect Trump's threats remains limited," Wendy Cutler, a vice president at the Asia Society Policy Institute and former US trade official, told AFP.

The past as a guide

During the first Trump presidency, the US imposed 25% tariffs on steel and 10% on aluminum imports from Mexico, before lifting them in 2019.

In 2019, the Trump administration also threatened to impose up to 25% tariffs on all goods coming from Mexico, saying that they would remain in place until Mexico "substantially" stopped the "illegal" inflow of migrants coming through its territory.

Mexico retaliated by imposing tariffs ranging from 7% to 25% on an estimated $3 billion of US goods, including steel, pork, fresh cheese, and apples.

Derek Scissors, a senior fellow at the American Enterprise Institute, a think tank, warned on Monday that targeting Mexico on top of China would "greatly increase" the inflationary risks.

While Trump promised to implement harsh tariffs throughout his presidential campaign, his first term suggests that the sweeping threats — which have reverberated throughout global markets and vulnerable sectors like the auto industry — might be a version of his long-favored "leverage," as BI previously reported.

Scott Bessent, Trump's pick for treasury secretary, has called tariffs a "negotiating tool."

Meanwhile, President Sheinbaum said that "dialogue is the best path to achieve understanding, peace, and prosperity for our two countries."

She added: "I hope our teams can meet soon."