FACT: As of 2024, the United States has the world’s largest economy, with a GDP of approximately $28.78 trillion. Mexico ranks as the 15th largest economy globally, with a GDP of about $2.02 trillion.

US President-Elect Donald Trump just announced on his social media that he will impose a sweeping 25% tariff on all products imported from Mexico, effective from Day 1 when he takes office in January.

Now what?

At first glance, the proposal seems aimed at punishing Mexico for issues like immigration and fentanyl trafficking. However, a closer examination reveals this could be more of a negotiating gambit or even a red herring, with U.S. consumers likely to bear the brunt of its consequences.

Who Pays the Price?

Mexico is the United States’ largest trading partner, with a significant portion of U.S. imports—ranging from winter vegetables to automobiles—relying on Mexican production. Imposing a 25% tariff would not eliminate the demand for these products. Instead, U.S. consumers would absorb the cost in the form of higher prices at the checkout line. This, in turn, would fuel inflation, a concern already top-of-mind for Americans.

If Trump’s tariff plan were implemented, everyday essentials like fresh produce, which U.S. farmers cannot supply in sufficient quantities, would see price hikes. Far from hurting Mexico, these tariffs would hurt American wallets. The economic pain would likely extend to industries dependent on Mexican imports, forcing businesses to either raise prices or absorb losses—neither of which benefits the U.S. economy.

Mexico’s Strategic Silence

Mexico’s decision to refrain from commenting on Trump’s announcement is a shrewd move. By not overreacting, Mexico avoids validating the rhetoric or escalating tensions prematurely. Instead, it allows the situation to play out while quietly preparing strategic countermoves.


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Mexico is well-positioned to diversify its trade partnerships. If faced with punitive tariffs, it could shift exports to other markets, leveraging trade agreements like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) or strengthening ties with Europe and Asia. By doing so, Mexico not only mitigates potential losses but also demonstrates to the U.S. that it is not an indispensable trading partner.

The Red Herring Argument

Trump has linked these tariffs to solving complex issues like immigration and fentanyl trafficking, but these connections appear tenuous at best. Tariffs are an economic tool, not a border control measure or a drug enforcement strategy. Blaming Mexico for domestic problems might play well politically, but the approach lacks substantive policy depth. It’s unlikely that raising the cost of Mexican tomatoes or avocados will meaningfully impact fentanyl distribution networks or migration trends.

A Calculated Negotiating Tactic?

Trump’s announcement might also be seen as a bold opening move in a negotiation strategy. By starting with an extreme position, he creates room to “compromise” later while still extracting concessions. This approach has been a hallmark of his deal-making style. However, this tactic carries significant risks, particularly when it involves an interconnected economic relationship like the one between the U.S. and Mexico.

A day after Trump’s public remarks about tariffs, Mexican President Claudia Sheinbaum said “We are equals. We are NOT subordinate to the USA. We are a big country and our workers are outstanding. The Mexicans who work in the USA are the best in the world!”.  She is letting the USA know that it won’t get pushed around anymore.

What Should Mexico Do?

If Trump follows through on his threat, Mexico’s best strategy would involve:

  1. Diplomatic Poise: Maintain calm, take calls, and project a willingness to engage while avoiding inflammatory reactions. This minimizes political theater and keeps lines of communication open.
  2. Trade Diversification: Accelerate efforts to expand export markets, reducing reliance on the U.S. and ensuring minimal economic disruption.
  3. Economic Messaging: Politely inform U.S. counterparts that Mexico’s products are now being welcomed by new international buyers. This would subtly underscore Mexico’s leverage without direct confrontation.

By staying measured and strategic, Mexico could reinforce its position while leaving U.S. policymakers to grapple with the economic fallout of their decisions.

The Real Loser: U.S. Consumers

Ultimately, this tariff threat risks backfiring domestically. Working-class Americans already grappling with inflation, would face even higher costs for necessities. Politically, this could undermine Trump’s populist appeal, as his core base would likely feel the financial squeeze.

Tariffs, when misapplied, can become a self-inflicted wound. Instead of delivering the intended punishment to Mexico, this policy could punish U.S. households. As such, Trump would be wise to reconsider pressing this button too hard, lest he alienate the very voters he seeks to court.

Conclusion

As the #1 trading partner with the USA, Mexico respects its relationship with the USA; proud of it. However, taking an openly rude and belligerent public position towards Mexico has no value. At this point, everyone knows Trump’s public gambits. But this is NOT 2016. In 2024, Mexico is already much different and much stronger. He is playing with fire.  And he will get burned!


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