According to recent news, foreign investments in Mexico are expected to decrease significantly in the coming years if higher tariffs are applied in the country. If these higher tariffs are implemented, the impact is expected to be felt through various channels.
The first channel would be through the exchange rate, meaning that the price of Mexican exports in dollars will not increase in the same proportion as the tariffs, but in a lesser percentage. It is likely that if these high tariffs are imposed, preconditions for their reduction will be established by the governments. It is important to note that the markets had already anticipated this possibility, as the Mexican peso had devalued by 25% in the last twelve months.
In addition, it is expected that intermediaries and businesses selling imported products will absorb part of the tariff increase, while the rest will fall on end consumers, which will increase production costs. This will require an adaptation to the new environment for Mexico to maintain its development.
The impact of the new tariffs will affect Mexico more than the United States, as exports represent a larger percentage of Mexican GDP. While it is anticipated that the U.S. economy will grow with these tariffs, it will do so at a slower rate than expected, while Mexico is expected to see a lower GDP growth of two percentage points.
Furthermore, both Canada and Mexico are expected to implement selective countervailing duties, which is allowed within the trilateral free trade agreement. Although the tariffs are not yet in effect, their impact has already been felt, affecting the stability and rules of the long-term trade agreement.
The possibility of a loss of nearly two million formal jobs, mainly in border areas and manufacturing sectors, is concerning for the Mexican economy. However, the flexibility of the exchange rate benefits certain sectors such as tourism, depending on security conditions.
The postponement of the application of tariffs by one month has provided some relief, but uncertainty persists regarding the measures that will be taken. These changes in trade policies are profoundly transforming the Mexican economy and the economic landscape.
