Mexico is the most vulnerable of all the economies affected by U.S. protectionism: 82% of its exports depend on the United States, generating nearly one-third of its Gross Domestic Product (GDP).

With the tariff, key industries such as automotive and electronics—which account for 36% of industrial space nationwide, according to SiiLA—could see their competitiveness eroded. Fitch Ratings and the Tax Foundation warn that, in the best-case scenario, Mexico's GDP will fall by 0.8 percentage points by 2026. But in the worst case, the country would enter a recession in 2025, with a contraction of up to 3.1 points, a 20% drop in foreign direct investment (FDI), and the loss of at least 131,000 jobs.

Furthermore, inflation would rise enough that not even a peso depreciation could offset the increased export costs. And so, with no fiscal room for economic stimulus, Mexico would face a structural blow that threatens its financial stability and weakens its position as North America's manufacturing hub—just ahead of the USMCA renegotiation in 2026.

Protectionism will not reindustrialize the United States, but it will make its economy more expensive. The U.S. relies on Mexican and Chinese inputs for its automotive, capital goods, and technology sectors. The Tax Foundation estimates that, with the tariffs, U.S. GDP will decline by 0.2% in 2025. However, the Federal Reserve Bank of Atlanta pointed out that the hit could be even greater: in the first quarter, growth could contract by up to 1.5% on an annualized basis, driven by a drop in consumption and the pre-tariff surge in imports.

Market uncertainty is already having visible effects. According to the U.S. Commerce Department, household spending fell by 0.2% in January, the most significant contraction since 2021, and companies have begun raising prices and cutting jobs.

Going forward, the Tax Foundation estimates that new tariffs on Mexican and Chinese imports will trigger moderate inflation of between $200 and $300 per household annually, equivalent to increases of between 0.3% and 0.5%. Coupled with pre-existing pressures, this could lead to stagflation—lower growth with higher prices.

Although tariffs generate fiscal revenue, the decline in investment and consumption could wipe out any advantage. On a global scale, U.S. trade leadership is already under pressure from China's retaliatory measures, valued at $13.9 billion—equivalent to a 15% tariff on U.S. imports—and potential countermeasures from the European Union.

Ultimately, without an effective plan to replace imports without harming its "partners," tariffs will fail to strengthen the U.S. economy and endanger what they were meant to protect: competitiveness, production, and employment.

Despite rising tensions, it is unlikely that the United States intends to destabilize Mexico completely. On the contrary, its primary trading partner remains a key player in its economic and geopolitical strategy. The Trump administration's goal is not— as previously stated— to relocate all manufacturing across the border, but rather to curb China's influence and push Mexico to align on issues such as migration, fentanyl, and regional economic security.

In recent years, Mexico has taken advantage of gray areas within the USMCA to attract Chinese investments that indirectly supply the U.S. market. Now, as trade tensions reach their highest levels in seven years, Washington is attempting to contain China's influence in the West while leveraging it to advance its technological and industrial development.

However, developing a regionalized North American economy faces obstacles far greater than any physical border wall: insecurity, which impacts investment and trade; labor informality and low workforce competitiveness, a key factor behind migration; and the fentanyl crisis—an epidemic that, according to the U.S. Congress, is responsible for over 70,000 overdose deaths annually, fueled by precursor chemicals primarily sourced from China and trafficked through Mexico by drug cartels.

Yet, the reality remains: both countries need each other more than they can afford to punish one another. Mexico is unlikely to face economic collapse; its growth may slow, but it will not unravel. In fact, greater internal stability and stronger enforcement of the USMCA could lead to unexpected benefits—encouraging investment in sectors less reliant on exports and strengthening domestic markets.

Likewise, strengthening public security could boost the economy. Various studies indicate that reducing crime can significantly stimulate investment. Research in Mexico shows that for every 1% increase in the homicide rate, FDI declines by 0.28% within five quarters. This impact is far from negligible: in strategic sectors such as advanced manufacturing and logistics, investment tends to surge in environments marked by stability and legal certainty.

Given this landscape, tariffs are unlikely to be permanent. While tensions will persist in the short term, historical patterns suggest that such trade barriers often soften or are gradually lifted—especially when they begin to harm U.S. businesses. Rather than closing doors, this moment represents a strategic recalibration in which Mexico and the United States redefine their terms of collaboration, placing nearshoring, security, and economic stability at the heart of the new playing field.

For deeper insights into the economic landscape shaping investment in Mexico, visit SiiLA Resource or contact us at contacto@siila.com.mx.