Facing Trump tariffs, 'the USMCA represents a sort of life insurance for Mexico'

If Donald Trump wins the US election on November 5, Mexican industry, buoyed by a wave of nearshoring investments, could face damaging tariffs, although the USMCA trade agreement is not in jeopardy and could help cushion the effects, BNamericas was told.

While a victory by Democratic Party candidate Kamala Harris would imply fewer troubles for Mexico, “Trump would arrive with a very transactional position regarding free trade, meaning it is fine to export to Mexico and Canada, but wrong to import from them. If my companies invest in the US, it is a plus but if they invest in the rest of North America, it’s a loss for the US,” Kenneth Smith Ramos, the chief negotiator for Mexico in the talks that led to the replacement of Nafta with the USMCA trade deal, told BNamericas. 

“This vision of trade is zero-sum, and the intention to use tariff increases as a trade policy tool would put Mexico in a complex situation where we would be permanently at risk of a tariff hike,” he added.

Trump promised to impose tariffs on goods Chinese companies produce in Mexico regardless of the USMCA terms, which entered into force on July 1, 2020.

“We’ll put a tariff of 200% on if we have to,” he said at a recent rally. “We’re not going to let it happen. We’re not letting those cars come into the United States.”

Chinese electric vehicle maker BYD and electrical appliance manufacturer Midea are among the companies that have announced plans to build factories in Mexico, which could enable them to take advantage of tariff free trade in North America under the USMCA’s rules of origin, although BYD México CEO Jorge Vallejo said in a recent interview with BNamericas that the company is focused only on Mexico.

But BYD is also one of the companies that put these plans on hold due to the uncertainty caused by the US elections and local debate on a judicial reform.

The USMCA is scheduled to be revised every six years, with talks coming up in 2026, when US, Canadian and Mexican trade officials can make recommendations on improvements and foster agreements. However, the revision would likely not threaten the treaty, regardless of who is in the White House, Smith said.

“There’s a minimal risk of canceling the USMCA in 2026. If an agreement is not reached, we will have a scheme of annual revisions starting that year… if Trump increases tariffs inside North America with its main trade allies, the retaliation could be immediate and have a high cost for the US. The USMCA represents a sort of life insurance for Mexico and Canada.”

The trade war between China and the US has benefitted Mexico, which is now the US’s top trading partner in goods, with total bilateral trade reaching US$807bn in 2023, according the US Department of State.

“The USMCA is an essential tool that makes Mexico more attractive to international companies,” said Smith. “If a trade disruption occurred in key sectors like automotive, aerospace, among others, or a tariff increase, this would make Mexico less attractive for foreign investment.”

Although Harris' support for US labor unions could also lead to protectionism, she and Mexico’s President Claudia Sheinbaum are more likely to reach agreements. 

“In terms of certainty, governing style, messages, and foreign policy, a Democratic Party administration would be more favorable” for Mexico, said Smith. “There could be ideological affinity between Harris and Sheinbaum with favorable postures related to environmental issues, renewable energies, climate change mitigation, gender policies, sustainable development. Those are matters in which both countries would definitely have larger differences under a Trump administration.”

More than 400 international companies expressed interest in relocating from Asia to Mexico in 2022, former economy minister Raquel Buenrostro said at the time.