As we warned, President Donald Trump fulfilled his promise to impose generalised tariffs of 25% on imports from Canada and Mexico. Moreover, to hedge against retaliatory tariffs, the statement mentions that in case the U.S. is strapped with tariffs, the percentage could increase. This measure is more aggressive than those imposed back in 2018–when he only levied duties on certain goods and according to specific rules. President Trump argued that this measure comes in response to Mexico’s unwillingness to stop migration and fentanyl flows to the U.S. Since President Trump started his campaign back in 2024, we have been highlighting that the imposition of tariffs is one of the main risks for the Mexican economy and local assets.
In response, President Claudia Sheinbaum has announced that Mexico will immediately impose tariffs and other kinds of measures against the U.S. However, it is unlikely that the response will be tit-for-tat as imposing tariffs on all imports would also negatively impact the Mexican economy, since almost 42% of all imports come from the U.S.
Generalised tariffs will certainly weigh on Mexican assets through different forms. The most direct is through the MXN, as the currency would adjust to cover a shock in the current account deficit. In our view, the MXN can depreciate further and reach levels around 21.50. In our view, levels above 21.80 would already be considering a strong shock, and so we see limited scope for losses beyond that level.
Another factor related to tariffs that would weigh on Mexican assets would be a higher risk premium. As explained througout this analysis and in our most recent documents, a 25% tariff would result in lower growth and might trigger a recession. The probability of a credit downgrade would increase in this scenario.
As such, even though 5Y CDS have already risen by nearly 20bp over the last 6M and spreads vs. USTs have widened, in our view, these trends would continue.