Rising Tariffs on the Horizon – Critical Factors for Companies in Mexico

The recent announcement from President Donald Trump, regarding the imposition of 25% tariffs on Mexico, marks a pivotal moment for North America’s economic future. Although this decision has been postponed for a month, it signals that the trade relationship between the U.S., Mexico, and Canada is evolving, with more adjustments likely in the near future. As the negotiations continue, this shift represents a new approach where traditional economic dynamics such as free trade and cost-efficiency may take a backseat to broader economic objectives.

While the U.S. and Mexico’s economic relationship may seem on shaky ground, companies in Mexico should carefully assess four crucial areas as these tariff talks unfold.

Tariffs as a Tool to Reshape Economic Relations

The Trump administration is well aware of the potential disruptions tariffs can cause, particularly to regional value chains and supply patterns. If tariffs remain in place, the current framework established under the United States-Mexico-Canada Agreement (USMCA) could be impacted directly. President Trump has made it clear that he sees the economic relations with Mexico and Canada as unfair, and the goal of tariffs is to fundamentally change that dynamic.

Traditional economic arguments, such as protecting consumers or maintaining regional competitiveness, may not be as effective in this new era. Instead, businesses must rethink their strategies, preparing for the possibility that tariffs could be a permanent feature of the landscape.

The Changing Landscape of U.S.-Mexico Relations

This situation is not just a temporary crisis to be weathered. With President Trump’s consistent use of tariffs to pursue both economic and political goals, companies operating in Mexico should prepare for ongoing changes in the U.S.-Mexico relationship. The U.S. government may continue to push for changes in trade and investment terms that prioritize American interests, and this could be a regular feature of U.S. policy moving forward.

Companies must also be aware that any trade deals or tariff delays might still carry long-term implications. A proactive approach to understanding the evolving political and economic environment will be key to mitigating potential risks.

Compliance and Due Diligence for Companies in Mexico

Given the heightened political tensions, U.S. companies must pay careful attention to compliance, particularly when it comes to engaging with Mexican businesses. For companies operating in Mexico, strengthening internal controls, improving due diligence, and adopting best practices in risk management will be essential to navigate these turbulent times.

Working closely with both U.S. and Mexican officials will be necessary to ensure continued compliance with regulations, as the potential for stricter enforcement grows. This may involve revising current corporate strategies to stay ahead of new legal requirements.

Mexico’s Energy Sector: A Critical Focus

The potential impact of tariffs on Mexico’s energy sector cannot be underestimated. While Canadian energy exports face a differentiated 10% tariff, Mexico’s energy exports are subject to the full 25%. Mexico’s state-owned oil company, Pemex, which is already struggling with debt, could be especially vulnerable. Given the significant reliance of the U.S. on Mexican oil, even small tariff impositions could create significant disruptions in the energy sector, affecting not only Pemex but also the overall economic stability in Mexico.

Furthermore, Mexico’s energy imports, including liquid fuels and natural gas, continue to grow, creating further pressure on the government to maintain stable energy prices. The sector’s challenges could become a focal point in the U.S.-Mexico trade conflict, and companies should be prepared for potential shocks.

Moving Forward: What Should Companies Do?

As the tariff situation evolves, companies must adapt to the new reality of U.S.-Mexico trade relations. A deeper understanding of the potential risks, including the energy sector’s role, can provide valuable insights for strategic decision-making. Businesses should prioritize compliance, strengthen their operational strategies, and remain agile in their response to these changing economic dynamics.

By taking these steps, companies in Mexico can position themselves to better navigate the challenges posed by tariffs while continuing to find opportunities for growth and success in an increasingly complex global market.