How US tariffs could shake up Mexico's economic landscape

The US accounts for over 80% of Mexican exports, primarily in manufactured goods. We explore the scenario that US President Donald Trump’s new administration imposes a 25% tariff on the country to contain migration or reduce drug trafficking. Our forecast assumes that Mexico would respond with 10% tariffs on a limited range of goods, primarily targeting metals and select food items.

We estimate that the implementation of 25% tariffs on Mexican exports would push the Mexican economy into recession. The primary contributor to this downturn is expected to be the real export of goods and services, which is forecasted to decline in 2025. However, the negative impact of falling exports may be partially mitigated by a contraction in the real imports of goods and services, attributed to reduced capital expenditures within the country.

Real GDP growth for the full year 2026 is expected to remain stagnant, reflecting these ongoing economic challenges.

Private fixed investment would be lower than expected due to the lower dynamism in the manufacturing sector and poorer business sentiment. Combined with the expected lower public investment growth in 2025 compared to 2024, the fixed investment component would decline in 2025.

Due to the adverse effects on the export sector, particularly within manufacturing, we project that the average unemployment rate will rise in 2025. The slowdown in remittance growth is expected to negatively influence real private consumption in 2025, which we now estimate will grow less than our previous projection.

Decreased external demand, rising fiscal pressures from slower revenue growth amid the economic slowdown, and a narrowing interest rate differential between Mexico and the US are expected to drive the exchange rate to 22.28 Mexican pesos per US dollar by the end of 2025, compared with 21.30 pesos in the current baseline.

—with contributions from Sacha Tenenbaum

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.