Mexico | US tariff adjustments: less trade protectionism with Mexico

Summary

On April 29, President Trump signed an executive order and a proclamation that modified the current tariffs related to security, immigration, the automotive industry, steel, and aluminum. These changes eliminate tariff stacking and provide rebates for the automotive sector.

Key points

• Key points:
• The tariffs will now not be cumulative. Therefore, Mexico will no longer face 50% tariffs, and those affected by tariffs of this magnitude from Mexico will be reimbursed.
• With the changes, auto parts exported to the United States under the USMCA framework will not be subject to tariffs, representing a relative advantage over other countries.
• The proclamation seeks to reduce the impact on the US automotive industry by allowing companies with factories in the US to access tariff discounts on foreign parts for two years based on the quantity and price of cars assembled and sold in the US. There are no changes to the tariff items considered or to the individual 25% tariff, but the elimination of tariff accumulation reduces the weighted average tariff from 18.2% to 13.9%.
• These actions reinforce our hypothesis that an equilibrium will be reached in which the level of protectionism toward Mexico will be lower than that applied to the rest of the world, due to the complementarities and integration in value chains that contribute to greater US competitiveness.
• In this way, the advantage for FDI in Mexico is consolidated, given the lower average tariff and the comparative advantage revealed particularly in the automotive industry. In any case, authorities, business leaders, and academia should seek to foster greater productivity in export sectors.

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