In this document we analyse how US import tariffs could significantly impact the economic balance of risks for Mexico, the US, and Canada in the short, medium, and long-term. The most likely short-term effect of import duties would be a depreciation of the MXN - which would absorb the negative effects on other macroeconomic variables such as GDP - with less of an impact on Mexican assets, the magnitude of which would ultimately depend on the affected products and the scope of the import duties.
The medium- and long-term impacts would also depend on the sector and the final tariff rates, but they are far more complex since most macroeconomic variables have ripple effects once a shock is generated. On the one hand, a 3.0% drop in US imports - equivalent to a shock of one standard deviation - would have slightly more of an effect on the Mexican economy in the near term. Furthermore, the US is in a better cyclical position to face the imposition of tariffs. On the other hand, the dynamic effects are quite different, as the US economy dissipates the effects of import duties far quicker and more completely. Our findings suggest that if tariffs are not temporary, target a wide and strategic range of products, or are set at high rates, all three countries could face a contraction in their potential growth levels.
President Donald Trump is poised to impose these tariffs, as he possesses the necessary tools to do so. Nonetheless, it is crucial to acknowledge that these tariffs may primarily serve as a political strategy to influence upcoming negotiations. We believe that the imposition of tariffs in the North American region could increase the volatility of Mexican assets, particularly the MXN, and may well complicate monetary policy decisions in 2025.
To assess the impact of US tariffs we have divided our analysis in the following sections:
- Tariffs and Trump 2.0
- The integration and future of the North American bloc
- The big question: who will be hurt the most by Trump’s tariffs?