Mexico braces for Trump’s return but 25% tariffs not necessarily likely

As Mexico braces for a critical year in 2025, economic and political challenges loom large under the pending new US administration led by Donald Trump. Mexican officials, however, assert that the nation is well-equipped to counter potential shifts in US policy that could impact its economy.

Trump is threatening 25% tariffs on Mexican imports, as well as those from neighbour Canada, if the respective countries do not stem the illegal border crossings of immigrants and drugs. He will be inaugurated on January 20.

In October 2024, Mexico was the second largest source of crude imports for the US, behind Canada. 

Marcelo Ebrard, Mexico’s Secretary of Economy, said that the country has developed contingency strategies to address various scenarios. “We are prepared for any feasible action from the United States. There will be no surprises,” he assured, adding that Mexico has been proactive in safeguarding its trade interests, particularly the USMCA trilateral agreement between Mexico, the US and Canada, which has bolstered trade by over 37%.

Despite Mexico's preparations, concerns persist about the potential for increased tariffs, mass deportations and the designation of Mexican criminal organisations as terrorist entities – policies hinted at by Trump’s team. These actions could exacerbate labour market disruptions and economic strain in Mexico, with possible spillover effects on violence and social cohesion.

Modest growth

Economically, Mexico’s growth outlook remains modest. Projections for 2025 vary, with the Ministry of Finance estimating GDP growth between 2% and 3%, while the OECD predicts a more conservative 1.2%. Key sectors, including telecommunications, tourism and construction, are expected to drive resilience. Investments in digital infrastructure and sustainable tourism, alongside robust public-private collaboration, are critical to navigating these uncertain times.

The leadership of president Claudia Sheinbaum will be tested as Mexico seeks to balance domestic growth with managing its complex relationship with the United States. Banamex analysts stress that strategic negotiation and economic adaptability will be pivotal for Mexico to weather the challenges ahead.

President Claudia Sheinbaum stated recently during her 100-day government report that while Mexico will maintain collaboration with the United States, it will not accept subordination. Her comments come as Trump threatens mass deportations targeting Mexican migrants.

Addressing thousands of supporters at Mexico City's Zócalo, Sheinbaum reflected on the state of bilateral relations, acknowledging past cooperation, including the USMCA trade agreement signed under Trump’s first administration, which she credited with fostering economic growth across North America. She proposed deeper economic integration across the Americas to compete globally, especially against Asia's rising economies.

She also announced major domestic initiatives, including a 12% increase in the minimum wage for 2025, aiming to achieve a purchasing power equivalent to 2.5 basic baskets by 2030. Additionally, she revealed plans to invest MXN835bn ($40.8bn) in social programmes benefitting over 30mn people, including pensions for the elderly and financial support for students and young professionals.

Infrastructure

On infrastructure, Sheinbaum highlighted progress on passenger rail projects linking Mexico City to major hubs like Pachuca and Querétaro, with further expansions planned. She also cited the early success of the Maya Train, which served nearly 400,000 passengers between October and December 2024.

Amid promises to fight corruption and ensure fiscal discipline, Sheinbaum confirmed there would be no salary increases for senior government officials during her administration.

As Trump’s second term nears, Sheinbaum pledged her unwavering commitment to defending Mexico’s sovereignty and the rights of its people, reaffirming her administration’s dedication to prosperity and equality for all Mexicans.

Trade surplus

Meanwhile Mexico’s trade surplus with the United States grew 12.6% year-on-year to a record $157.2bn from January to November 2024, according to data released by the US Census Bureau on January 7. The increase highlights faster growth in Mexican exports compared with imports.

Mexican exports rose 6.4% during the period, reaching a record $466.6bn, while imports from the US increased by 3.5% to $309.4bn. This outpaced the overall growth in US imports, which rose by 5.3%, allowing Mexico to expand its share of the US import market to 15.6%, up from 15.5% a year earlier.

Mexico has solidified its position as the leading supplier of goods to the United States, surpassing competitors such as China and Canada. China’s share of US imports declined to 13.5% from 13.9%, while Canada’s fell to 12.6% from 13.7%.

The strong trade performance positions Mexico to end 2024 as the top US trading partner for the second consecutive year. This comes ahead of Donald Trump’s return to the presidency on January 20, following a four-year hiatus. During his first term, Trump pursued protectionist policies aimed at reducing the US trade deficit, labelling NAFTA “the worst trade deal ever made” and renegotiating it into the USMCA.

Trump has continued to criticise trade deficits during his second campaign and has hinted at reopening negotiations on the USMCA, with its first scheduled review set for 2026. He has also threatened a 25% tariff on Mexican imports to the US. 

The gap in Mexico’s favour has widened significantly since the onset of Trump’s trade war with China in 2017, and later with the implementation of the USMCA. Between 2017 and 2024, Mexico’s trade surplus with the US grew by 146%, from $64bn to $157bn, equivalent to an annual growth rate of 13.8%.

In contrast, from 2010 to 2017, the surplus rose by a mere 3.6%, increasing from $61.6bn to $63.8bn. This surge underscores the shifting dynamics in North American trade, with Mexico benefiting from supply chain adjustments prompted by US-China tensions and the new trade agreement framework.

As Trump prepares for his second term, the future of US-Mexico trade relations remains in focus, with potential implications for the region's economic landscape. A 25% tariff on imports to the US would spark ire in Mexico, and the prospect may just be bluster from Trump and never come to pass.

But according to the Wall Street Journal, Trump’s transition team has been drafting dozens of executive orders for implementation early in his presidency. The incoming US chief executive does intend to make a splash.

Sheinbaum has taken office just eight weeks before Trump made his tariff threat. And the ex-scientist has since impressed and surprised observers with her verbal sparring with Trump.

"It's a very pragmatic and proactive approach by Sheinbaum and her team," Gema Kloppe-Santamaria, a global fellow of the Mexico Institute at the Wilson Centre, told Reuters.

"She's sending this message that she is a strong political leader," said the fellow, pointing to Sheinbaum polled popularity and her crackdowns on border crossings by migrants and Fentanyl.

"Trump without a doubt comes with a lot of power and legitimacy, but she does as well," she said. Sheinbaum has ever suggested Mexico might impose its own tariffs.

"I think these measures are enough to establish a floor for the negotiations and keep Trump from imposing tariffs on day one," Matias Gomez, analyst at consulting firm Eurasia Group, told Reuters.

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