Mexico | Trade protectionism and economic risks for Mexico

Summary

Given more synchronization of economic growth and inflation between Mexico and the US due to the presence of Global Value Chains (GVC), the cost of protectionist measures in the latter (the imposition of a 10% universal tariff on all imported products) on activity, inflation and welfare of the former would be amplified.

Key points

• Key points:
• Even though it is not clear at all that this tariff could apply to Mexico for USMCA reasons, the country would be in a more vulnerable situation than other emerging economies.
• According to Capital Economics’ forecasts, a 10% universal tariff would reduce US imports by 5% and would have an adverse impact of 1.5% over Mexican GDP o even higher due to GVC effects.
• If the US were to impose a tariff on automotive vehicles coming from Mexico, the Mexican peso would weaken and this depreciation could make the Banxico’s easing cycle more gradual than we are currently anticipating.

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