Challenges Mexico Faces from Tariffs Imposed by Trump
The imposition of a 25% tariff by the United States on shipments of Mexican products is seen as a violation of the Treaty between Mexico, the United States, and Canada (USMCA), which takes precedence over any executive orders or presidential decrees by member countries, experts stated in an interview with Expansión. In this context, Mexico has the option to respond through one of three available alternatives: impose new tariff and non-tariff measures, which could include special permits or specific packaging requirements for products coming from the United States. After a month without action, the 25% tariffs will apply to products from Mexico and Canada being sent to the U.S. starting Tuesday, March 4. According to President Claudia Sheinbaum, details of these measures will be announced next Sunday at noon in Mexico City's Zócalo.
To officially implement these measures, the Ministry of Economy must publish them in the Official Gazette of the Federation, commented Pedro Canabal, partner in Foreign Trade and Taxes at Baker Tilly Mexico. It's important to remember that in June 2018, during the beginning of Donald Trump's first term and amidst the renegotiation of the North American Free Trade Agreement (NAFTA), tariffs were imposed on steel and aluminum from Mexico, Canada, and Europe. In response, Mexico took tariff measures against strategic products coming from its northern neighbor, such as pork, processed meats, apples, grapes, and blueberries. Mexico also has the option to request a dispute resolution mechanism under the treaty, negotiated by economic and trade teams during the Trump administration, as well as during those of Enrique Peña Nieto and Andrés Manuel López Obrador. The imposition of tariffs on Mexico and Canada is viewed as a direct violation of the commitment to preferential tariff treatment for goods considered originating under the USMCA, as stated in Article 2.4, explained Gloria Rocío Estrada Antón, president of the Technical Commission on Foreign Trade of the College of Public Accountants of Mexico (CCPM). “However, the U.S. president justifies his decision by claiming it's a national economic emergency, citing the IEEPA: International Emergency Economic Powers Act. This law allows the U.S. government to argue an economic emergency based on the influx of migrants and fentanyl, which impacts its economic system,” clarified the CCPM specialist. This implies that the U.S. would be basing the imposition of tariffs on a national security issue, which can be interpreted as a justification to protect its vital security interests, as also established under the USMCA in Article 32.2. For the moment, there is no immediate way to reverse the U.S. government's decision; however, the governments of Mexico and Canada will utilize the dispute resolution mechanisms of the USMCA and the World Trade Organization to demonstrate that the alleged emergency does not hold up, given that both nations have fulfilled their obligations under the treaty, which does not consider non-compliance on immigration or drug trafficking issues as a valid justification for breaching the USMCA, the specialist emphasized.
Ultimately, while there is the option of withdrawing from the treaty, this is not an easy or beneficial solution for the country, given the significant dependence on Mexican exports to the United States. “Moreover, since this agreement was negotiated at the time by Trump's team, I see it as complicated to undo it also in the U.S.,” Canabal commented. Article 34.7 of the USMCA states that the treaty has a duration of 16 years following its entry into force in 2020, meaning it will remain in effect until 2036, unless the members express their wish to extend it. In order to extend it for another 16 years, during the first scheduled review in 2026, the members must express this intention, extending its validity until 2052; otherwise, it will end in 2036. This morning, President Claudia Sheinbaum mentioned that, despite the continuation of the tariffs, trade between both nations will continue, and the Mexican government remains open to dialogue. It is anticipated that President Sheinbaum and U.S. President Donald Trump will have a conversation next Thursday. “In any case, the United States seeks to continue renegotiating the treaty, so dialogue is necessary and must be at the presidential level... we are attentive to the dialogue, but should these tariffs persist, we need to establish measures to protect our economy,” Sheinbaum assured.
It is crucial for Mexico to carefully manage its strategy in response to these tariffs, maintaining a balance between defending its domestic market and upholding international commitments. Diversification in exports and seeking new markets will be key to mitigating the impact of trade tensions with the United States.
