The Trump administration’s move to impose tariffs on Mexico sent shock waves across the country of 130 million people on Sunday, with economic sector after sector bracing for the impact of these measures.
So far, Mexico has yet to provide any specifics on how it plans to hit back. But President Claudia Sheinbaum’s negotiators must select from areas where her country has some leverage to react, such as agriculture, and parts of the economy where it has little or none, like the energy industry.
“Just as a starting point, Mexico has to retaliate,” said Kenneth Smith Ramos, a former Mexican government negotiator who put together the retaliation list in 2018, when the country squared off with the first Trump administration over tariffs.
“But you need to do it in a way that causes economic harm in the U.S., with precision shots on certain products that also cause political turbulence,” Mr. Smith Ramos added.
That could mean new tariffs on Kentucky bourbon, high-fructose corn syrup, pork or other products coming predominantly from states that supported President Trump in the November election.
Conditions have changed since the last time Mexico and the United States were mired in a trade crisis, during Mr. Trump’s first term. Since then, Mexico has eclipsed China as the largest trading partner in goods with the United States. Mexico also emerged as the top market worldwide for U.S. food and agriculture exports, with those imports surging 7 percent from the previous year to more than $29 billion, according to the U.S. Department of Agriculture.
But if agriculture is one area where Mexico could find numerous ways to retaliate, other parts of the economy, like automobile manufacturing or energy, expose the country’s deep vulnerabilities to Mr. Trump’s heavy-handed tactics.
In those sectors, Mexico’s reliance on the United States has actually increased in recent years, giving its negotiators less maneuvering room. But Mr. Trump’s tariffs could still resonate in the United States if they result in higher prices for cars or refined fuels like diesel.
Mexico also has some other tools at its disposal.
The authorities could allow the country’s currency, the peso, to weaken against the dollar, effectively making its exports more competitive despite Mr. Trump’s tariffs. The peso fell 2.5 percent in trading on Sunday to 21.21 to the dollar, its lowest level since Russia’s invasion of Ukraine rattled markets in 2022.
A 17 percent slide in value of the peso over the past year, combined with the tariffs imposed on Canada and China, among Mexico’s main competitors in the U.S. market, will ease the blow from the tariffs in Mexico, said Alberto Ramos, head of the Latin American research team at Goldman Sachs.
But the real risk to Mexico’s economy is whether the trade war will be resolved quickly or extend over a long period of time. If the tensions go unresolved, that could lead to factory closures, job losses and a recession, economists warn.
Raine Mahdi, chief executive of Zipfox, a San Diego-based company that links factories in Mexico with American companies seeking alternatives from Asia, said he viewed the tariffs as a negotiating tactic aimed at winning concessions from Mexico in areas like migration and the drug trade.
“All Mexico really needs to do, and they will, is show some genuine honest effort in those areas,” Mr. Mahdi said. “That’s all this is about.”
Still, politics might get in the way of hammering out a deal. The Trump administration’s assertion that Mexico’s government has an “intolerable alliance” with drug cartels has already hit a nerve in Mexico’s political establishment, producing a stern rebuke from Ms. Sheinbaum.
In a video responding to the U.S. tariffs, the Mexican president on Sunday called Mr. Trump’s claim that the Mexican government had an alliance with criminal groups “terribly irresponsible.” She said she was preparing to announce retaliatory measures on Monday morning.
“If they want to act, they should not set their sights on Mexico, but on their own country, where they have done nothing to stop the illegal sale of this and other drugs,” Ms. Sheinbaum said, referring to fentanyl.
As tensions simmer, these are the areas of Mexico’s economy which will shape the country’s response to Mr. Trump’s tariffs.
Mexican farmers, who supply 63 percent of U.S. vegetable imports and 47 percent of its fruit and nut imports, could come under intense pressure if the tariff dispute intensifies. Products like avocados, which have experienced skyrocketing demand from American consumers, will likely get more expensive.
But as Mexico has increased its agricultural exports to the United States, it also grown into the most important market for U.S. food and agricultural exports, ahead of both Canada and China.
That could allow Mexico to target certain products from the United States with tariffs. In 2018, Mexican negotiators strategically placed tariffs on products from states and regions with strong ties to the first Trump administration, including apples, bourbon, cheese, cranberries, pork and potatoes.
Canada, which Mr. Trump also hit with 25 percent tariffs, has already announced retaliatory levies on selected U.S. goods this time around. The country’s response is focused on maximizing the effect in Republican-controlled states, in a bid to get representatives from those states to ask the president to call off U.S. tariffs and de-escalate.
That tactic, along with similar tariffs on U.S. products from Canada, seemed to work when officials from Mexico, Canada and the United States returned to the negotiating table. Scrapping the tariffs imposed at the time, they renegotiated the trade treaty intertwining the three countries and hammered out the U.S.-Mexico-Canada Agreement, which Mr. Trump signed in 2020.
The fate of that treaty, known as the U.S.M.C.A., is now up in the air, as Mr. Trump and his advisers argue that its terms were not restrictive enough to prevent American manufacturers from moving factories outside the United States.
When it comes to agriculture, experts say Mexico could also have the potential to pivot, albeit slowly, to other markets. Even as Mexico has relied on the United States, Mexico has increasingly sought to expand trade with countries in Asia and Latin America.
Mexico has also strengthened ties with the European Union, which is the second-largest market for Mexican exports after the United States, and imports products like tequila and beer, coffee, fruit juice, avocados and berries.
In addition to tariffs, Mexico could eliminate preferences for imported grains and vegetable oils from the United States, potentially opting to import such products from Latin American agricultural powerhouses like Brazil or Argentina. But that could require major changes to infrastructure like ports and railways, something hard to do in the near term.
Automobiles
The new tariffs have the potential to wreak havoc on Mexico’s automobile industry, a linchpin of the country’s economy employing more than one million people and accounting for about 5 percent of gross domestic product.
Vehicles and auto parts are Mexico’s largest export to the United States, worth $157 billion in 2023. As vehicle production has waned over the years in Canada, it has increased in Mexico, exposing car manufacturers from around the world, and their many thousands of Mexican employees, to disruptions.
About 27 percent of Nissan’s sales in the United States were sourced from Mexico in 2024, while Stellantis sourced 23 percent and General Motors sourced 22 percent, according a report by S&P Global, a provider of financial information and credit ratings.
As supply chains have increasingly grown more complex and intertwined, Mexico appears to have relatively little leverage to respond with measures targeting U.S. car manufacturers since many of these companies already operate in Mexico and are grappling themselves with how to react.
But Mexico could provide a concession by doing more to curb imports of Chinese vehicles, which are quickly making inroads in an important market for U.S. and European car manufacturers.
Uncertainty over one of the main engines of Mexico’s economy could produce factory closures and job losses at home. And in the United States, the tariffs on vehicles could place greater strain on vehicle affordability when car prices are approaching historic highs.
For American consumers, the 25 percent import tax would add $6,250 to the average $25,000 landed cost (which includes the vehicle price, transportation and duties) of a vehicle from Mexico, S&P estimated.
Energy
Another weak spot for Mexico is energy. After a costly bet on fossil fuels and years of underinvestment in its own energy production, Mexico faces both declining oil output and a dearth of renewable energy resources to bolster its grid.
Laying bare this dilemma, Mexico relies on imports of U.S. natural gas for a staggering 70 percent of its domestic natural gas consumption.
The country’s fast-growing, low-cost industrial base is especially dependent on these energy imports to power factories, warehouses and data centers. That reliance could prevent Mexico from placing its own tariffs on imported U.S. energy.
Mexico also exports roughly 700,000 barrels of crude oil a day to the United States, cargoes that will now face a 25 percent import tax. (By contrast, tariffs of just 10 percent will be placed on Canadian energy exports to the United States.)
In turn, Mexico also imports large amounts of refined fuels like gasoline and diesel from the United States. Ms. Sheinbaum’s predecessor, Andrés Manuel López Obrador, had sought to curb this dependence by building huge new refineries in Mexico.
But immense cost overruns and delays have kept Pemex, Mexico’s debt-laden national oil company, from reducing this dependence on fuel imports from the United States. That leaves Mexico with less leverage as it prepares to respond to the Trump administration’s measures.
Annie Correal contributed reporting from Mexico City.
