Mexico | Trump’s Tariff Threat has the potential to be a game changer for Mexican Economy

Summary

Incremental tariffs (up to 25%) would likely push the Mexican economy into a recession; inflation risks, an overly hawkish Banxico and fiscal constraints would limit the room for countercyclical fiscal and/or monetary policies.

Key points

• Key points:
• Trump’s announcement that a tariff rate of 5% across the board on all US imports from Mexico will come into a week and a half away from now (on June 10) suggests that it will likely be introduced even in view of AMLO’s intention to push for dialogue.
• The incremental rise in the tariff rate (by 5% each month until it reaches 25%) unless Mexico “substantially stops” migration flow to the US is more uncertain.

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