On Saturday, February 1, the White House announced a statement to impose a 25% tariff on imports from the United States from Mexico and Canada, effective as of Tuesday, February 4. Among the main reasons, these two countries were accused of not cooperating properly against illegal immigration and fentanyl traffic that affect the United States. On Monday, February 3, the heads of State in Mexico and the United States reached an agreement to pause for a month the implementation of tariffs while their work teams hold high -level meetings to address security and trade issues. Obviously, President Donald Trump is using tariffs as a currency to implement their foreign policy, regardless of the limits and economic costs of these import taxes.
This first agreement provides the hope that the implementation of tariffs is definitively suspended since the potential economic damage could be high impact. What economic effects could these tariffs have on the United States? The response depends on several factors, such as the time of its validity, the possible tariff reprisals of Mexico and Canada, the US tariff response to these reprisals, the diversification of the imports of the United States, the reduction in the prices of exporters Mexicans and Canadians as a reaction to tariffs, the adjustment of the exchange rate and the economic slack of the United States for the production of goods that replace taxes taxed with the 25%tariff.
Capital economists Economics point out that this tariff to Mexico and Canada would temporarily increase the United States inflation by approximately 1.0%. They also mention that the economic growth of the United States could be adversely affected if the income estimated by tariffs (0.8% of GDP) were not spent by the government of that country. Currently, the BBVA Mexico forecast for the growth of American GDP in 2025 is 2.0%. The problem with the tariff impact is, as the French economist Frédéric Bastiat said, which is not seen: the lower purchasing capacity of US consumers to buy other goods and the highest costs about companies that import goods from Mexico or Canada .
What economic consequences would tariffs have in Mexico? Unquestionably, the impact on investment, exports and competitiveness could be very adverse. Therefore, there would be considerable downward risk for the economic growth of Mexico in 2025. BBVA Mexico estimates point towards a negative effect of up to 2.5% on GDP in the event that tariffs had a prolonged duration. On the other hand, the inflationary impact would depend on the price reduction in Mexico (of the goods that are exported to the United States) and the weakness of the aggregate demand, which would be counteracted by the transfer to consumer prices of a greater type of change. The situation of uncertainty about how inflation would evolve in Mexico would most likely make the Bank of Mexico more cautious about the rhythm and number of cuts to the reference rate. To date, the BBVA Mexico forecast for economic growth and general inflation in 2025 is 1.0% and 3.5%, respectively.
There is no doubt that Trump’s tariffs and possible tariff reprisals would anticipate a very uncertain panorama for the continuity of the T-MEC and the economic integration of North America. It is a fact that the United States needs Mexico and Canada to promote their economic well -being and be able to compete with China. Apparently, Trump is already realizing this.
*The author is the main economist of BBVA Mexico.
