Trump’s Tariffs - A Threat to US Jobs and a Catalyst for New Alliances

Montevideo (Uruguay), Dec. 04th, 2024

Preface

The return of Donald Trump to the White House has reignited trade tensions in North America. His latest proposal to impose 25% tariffs on imports from Mexico and Canada could have far-reaching implications, not just for the US economy but for global trade dynamics. Mexican President Claudia Sheinbaum and Economy Minister Marcelo Ebrard have been vocal about the risks, warning that these tariffs could cost the US up to 400,000 jobs while significantly raising vehicle prices for American consumers.

The Economic Ripple Effect - An Articulated Answer

According to Mexico’s analysis, the tariffs would directly impact automakers like Ford and General Motors, whose Mexican operations are vital for producing 88% of pickup trucks sold in the US. Price hikes of $3,000 to $7,500 per unit could deter consumers and slow sales, ultimately threatening jobs in both countries. The situation is not much different for the Stellantis and GM car brands. Add to this the entire automotive supply industry in Mexico, as well as the U.S. investments of the sector in Mexico, and a rather complex picture emerges from the perspective of the vociferous MAGA faction. 

Sheinbaum’s administration has emphasized the inflationary pressure this policy would place on the US, a stark contrast to Trump’s pledge to curb inflation. While the former president frames the tariffs as a strategy to combat undocumented immigration and drug trafficking, the economic consequences paint a different story.

Mexico's Strategic Countermoves

In response, Mexico is bolstering its alliances. It is expediting trade agreements with the European Union and strengthening ties with Brazil and Mercosur. These actions could pivot Mexico’s economic focus away from its northern neighbors, opening new opportunities in Latin America and Europe.

Sheinbaum has also signaled readiness for retaliatory tariffs and urged collaboration between the USMCA nations (United States-Mexico-Canada Agreement) to address shared challenges like inflation and migration. “We don't compete with each other; we complement each other,” she said, stressing the importance of unity in a deeply interconnected regional economy that accounted for US$1.8 trillion in trade from January to September 2024.

The Broader Implications

Claudia Sheinbaum, the successor to Andrés Manuel López Obrador (AMLO), is much more dynamic and pragmatic than her predecessor. Sheinbaum already promised during the election campaign that she would take a position of confrontation with the criminal cartels - which began immediately from day one of her term of office. Sheinbaum immediately began investing in intelligence technology, immediately launched operations and launched a very intensive programme to professionalize the national police force and the armed forces deployed in the drug war. In addition, the integration of state and federal authorities is being intensified.  

The first results are already visible. With regard to the issue of fenthanyl trafficking from Mexico to the USA in particular, the Mexican side is currently recording a monthly seizure of around 400,000 units - many times more than the previous government. 

In her response last week to Trump's threats, Claudia Sheinbaum responded with facts and unequivocal statements. According to Trump, the main problems would be illegal fenthanyl and illegal immigration. Sheinbaum showed unequivocally that the uncontrolled arms trade from the U.S. to Mexico is increasingly arming the cartels. Fenthanyl trafficking is an issue that goes back to the completely desolate public health care system in conjunction with a corrupt system between doctors, the pharmaceutical industry and addicted patients. 

Anyone who has seen the Netflix series Ozak will have gained an idea of the desolate situation in the USA.

Claudia Sheinbaum knows that the issue of security is a big trump card on her side. She is already doing the work with her administration; for Trump to appear victorious to his supporters, he needs Mexico. 

Tom Homan - the border czar

In a Fox News interview these days, Tom Homan went on record saying that as the man in charge of the southern border, he could give U.S. Special Forces the absolute freedom to operate deep on Mexican soil as well. This is a nightmare for any Mexican government, which historically has always been very patriotic.

But here, too, it is clear that a pragmatic attitude on both sides can create synergies and guarantee success.

During her time as mayor of Mexico City D.F., Claudia Sheinbaum had already worked very successfully and constantly with the secret services and drug authorities D.E.A. of the U.S.A. to combat the cartels.   

As a politician, Trump has always been a pro at creating narratives. This includes the notorious claim that entire armies south of the Rio Grande would invade the U.S. and take over the nation. It can be assumed that Trump will declare this alleged crisis over right at the start of his term of office, as Mexico has been threatened with tariffs of 25%. This would declare a crisis that has not been a crisis for a long time to have been overcome.

Since Claudia Sheinbaum took office, the Mexican authorities have reduced illegal border crossings to the US by 75% - and the trend continues to fall.      

Counter Productive

In the event of a hyopothetic tariff of only 10% against Mexico, Mexico's GDP would collapse by at least 1.5%. 

Trump’s tariff threats could inadvertently accelerate the formation of one of the world’s largest economic blocs: a free trade agreement between Mercosur and the European Union. With Mexico’s potential pivot towards these markets, the US risks losing influence in a rapidly evolving global trade landscape.

While uncertainties remain—especially regarding whether these tariffs will be implemented—Mexico’s proactive strategy highlights its resilience and adaptability in navigating geopolitical challenges.

Conclusion

Trump’s proposed tariffs could destabilize North America’s economy and reshape global trade alliances. Mexico, Canada, and the US have much to gain from collaboration and much to lose from division. As Sheinbaum aptly put it, “One tariff will be followed by another in response and so on, until we put companies of common interest at risk.”

The stakes are high, and the future of North American trade hangs in the balance.

If you want to know more about Mexico and USMCA, our management on-demand and consulting boutique has published some very recent blogs and case studies. Please visit the webpage.

>>> iMB.Solutions Newsletter & Blogs

You want to know who Claudia Sheinbaum is? Here is a link to a blog published on her election as the new President of Mexico in 2024.

>>> Claudia Sheinbaum: Mexico’s First Female President-Elect - A Historic Victory

Personal note Frank P. Neuhaus I have known Mexico for almost three decades - I have experienced many developments myself in Mexico, including the entry into force of the first NAFTA agreement. In the second half of the 90s of the last century, I lived and worked in Mexico as Regional Managing Director for Latin America of the German ThyssenKrupp Group. Later, as Managing Director for European mechanical and plant engineering companies in Brazil, Mexico was also very often in the business focus - be it for export business from Brazil to Mexico, or after sales business in support of US colleagues for the Mexican market. In recent years, I have once again focused strongly on Mexico with our Management on Demand and Consulting Boutique. Especially in the industrial sector of the automotive supply industry, we have worked on various project missions in Mexico and the southern belt of the USA. If you have a need for specific projects in Mexico or consulting needs - let us arrange a non-binding meeting.