Mexico has vowed to retaliate against the United States after President Donald Trump made good on his threat to slap a 25 per cent tariff on both Mexican and Canadian imports effective February 1 – as well as a 10% tariff on Chinese imports on top of pre-existing levies – paving the way for the end of the USMCA agreement.

President Claudia Sheinbaum directed her economy minister to implement "Plan B" countermeasures, including tariff and non-tariff actions. Sources familiar with the matter suggest Mexico is considering levies of 5 to 20 per cent on American pork, cheese, fresh produce, steel and aluminium products, whilst initially sparing the automotive sector.

The measures risk to severely disrupt the substantial trade relationship between the two nations. The US exported more than $322bn worth of goods to Mexico in 2023, whilst importing $475bn of Mexican products. Mexico surpassed China last year to become America's leading export destination, with nearly one-third of Mexico's GDP directly dependent on US exports.

Economic forecasts paint a grim picture. BBVA strategists project that even a 10 per cent tariff would limit Mexico's growth to 1 per cent this year, while a 25 per cent tariff could trigger a 1.5 per cent GDP contraction. The peso could weaken to 24 to the dollar, though Banco de México is expected to temporarily maintain current rates before resuming cuts in the third quarter as weak demand partially offsets inflationary pressures.

The economic toll could be particularly severe given Mexico's trade dependence. Alfredo Coutiño, director of economic analysis for Latin America at Moody's Analytics, told El Economista that a year-long 25 per cent tariff would trigger a GDP contraction of around 1.5 per cent, noting that Mexican exports account for nearly 40 per cent of GDP, with 84 per cent destined for the US market. Three major research teams - Moody's Analytics, HR Ratings, and S&P Market Intelligence - now anticipate a Mexican economic contraction if the tariffs persist through 2025.

US financial markets reacted sharply to the news, with the Dow Jones Industrial Average falling 337.47 points to 44,544.66 on January 31 after White House press secretary Karoline Leavitt confirmed that final tariff details would be released over the weekend. The S&P 500 dropped 0.50 per cent to 6,040.53, with energy and technology sectors leading the decline. 

The White House justified the move by citing the need to "hold China, Mexico and Canada accountable for their promises to stop the flow of poisonous drugs into the United States." Sheinbaum categorically rejected what she termed White House "slander" regarding alleged government ties to criminal organisations, highlighting that her administration has seized 20mn doses of fentanyl and arrested more than 10,000 individuals linked to drug trafficking since taking office in October.

Regional opposition to the measures has been swift and forceful. The Mexico-Arizona Commission, representing a state where Mexico accounts for 33.2 per cent of imports worth $8bn in 2023, warned that the tariffs would disrupt supply chains and increase costs for businesses and consumers. Arizona Governor Katie Hobbs condemned the move as "hasty action that will have a real impact on our state's economy."

For his part, Mexican Economy Minister Marcelo Ebrard slammed the US action as a "flagrant violation" of the USMCA, a free trade agreement that Trump himself negotiated in 2019, declaring "Plan B is underway. We will win!" BBVA analysts suggest that a permanent 25 per cent tariff would make it "impossible to sustain" the current trade agreement, with an additional GDP impact of up to 1 percentage point if job creation and real wages suffer from increased uncertainty about the USMCA's future.

Ricardo Monreal, Mexico's ruling party congressional leader, described the US measures as "one of the heaviest attacks Mexico has received in its independent history." However, Sheinbaum pointed out that while Mexico's sovereignty was "not negotiable," she still favoured cooperation over confrontation. She proposed establishing a bilateral working group of public health and security specialists to address shared concerns, stating that problems "are being solved not through introduction of tariffs but by talks and dialogue."

The escalating trade tensions come at a particularly sensitive time for North American economic integration, with experts warning that sustained tariffs could fundamentally reshape regional trade patterns and investment decisions for years to come.