Trump's Impact on the Mexican Economy; 'Panic Buying' Anticipated Amid Possible Tariffs

With Donald Trump back in power and his threat to impose harsher tariffs, several scenarios are emerging. American companies are taking precautions and pulling forward imports from Mexico. The numbers for U.S. imports from Mexico continue to rise, breaking monthly records this year, except for July. In October, the latest month reported by the U.S. Department of Commerce, imports from Mexico reached $45.492 billion.

That month, the overall U.S. trade deficit decreased by 11.9% compared to September. However, the trade deficit with Mexico grew significantly, hitting $16.377 billion, the highest monthly figure recorded. A significant increase in U.S. imports from Mexico is expected in the last months of the year (November and December), as well as in January 2025.

A Double-Edged Sword for Mexico Carlos Ramírez, managing partner at Integralia Consultores, points out that this trend stems from fear of potential tariffs under Trump's leadership. “It’s normal for companies to be proactive about the risk of new tariffs. We've already seen in the October data that this might be happening. Although Trump had not won the election at that time, it’s understandable that companies want to maintain inventories in preparation for the possible implementation of tariffs,” explains the expert. For Mexico, this situation translates into a short-term increase in its exports, but it could have adverse consequences if the tariffs Trump announced are implemented from day one of his administration, scheduled for January 20, 2025. “For now, these figures are influenced by the ‘Trump risk.’ We’re likely to see an initial benefit in exports, followed by a decline if the tariffs are actually applied,” adds Ramírez. These pre-emptive purchases have been building up for months, starting during the presidential campaign and reinforcing with Trump's electoral victory. In 2019, Trump announced a 5% tariff on Mexican imports, set to be implemented in ten days, but that measure was quickly deactivated by the Mexican government. The current difference isn’t just the lead time, but the magnitude of the threat; this time, a 25% tariff is proposed. Concerns are also reflected in the recommendations of consulting firms like EY, which suggest that strategic planning will be crucial to mitigate the impacts of these tariffs, which would also affect Canada and China. One of their recommendations to U.S. companies is to bring in imports from the affected countries ahead of January 20, 2025. However, these strategies come with considerable challenges such as additional inventory carrying costs, transfer pricing, direct cost impacts, difficulties with perishable goods, and effects on cash flow.

Retailers on the Move Another indication that importer operations are growing due to tariff threats is the report from the National Retail Federation (NRF). Although it’s still unclear whether the tariffs will be implemented immediately or undergo a longer process, shippers are speeding up the movement of goods in anticipation of potential trade restrictions. According to the Global Port Tracker report released this week by the NRF and Hackett Associates, the possibility of a new strike next month at East Coast and Gulf Coast ports, combined with Trump’s plans to increase tariffs, is driving sustained growth in imports through the country’s major ports. The report forecasts that the 16 main U.S. container ports monitored by Global Port Tracker will see November volumes reach a record 2.17 million twenty-foot equivalent units (TEUs), representing a 4.4% increase compared to the same month last year. December volumes are also expected to hit 2.14 million TEUs, a 14% increase from the previous year. “With the possibility of a new strike next month in the East Coast and Gulf Coast ports, and Trump planning to raise tariffs, container ports are expected to continue seeing an increase in imports through next spring,” predicts NRF.

Comment:

The uncertainty surrounding trade policies can lead to drastic changes in market dynamics. For companies that rely on imports, implementing risk management strategies, such as diversifying suppliers and maintaining adequate inventory levels, is crucial to mitigate potential adverse impacts on cash flow and profitability. Medium- and long-term planning becomes essential in a volatile economic environment like the one that is looming.