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Mexico will learn its fate just after April Fool’s Day. Donald Trump has called April 2 “liberation day”. For Mexicans, it will be the moment they discover the extent of the economic damage that Trump plans to inflict on their country.
Much of the global economy will probably be hit by the tariffs America is set to announce on April 2. But the stakes are especially high for Mexico, which sends 80 per cent of its exports to the US. Trump has already imposed 25 per cent tariffs on both Canada and Mexico. About half of these new duties were swiftly put on hold. But they could all be reimposed next week.
Mexico’s fate is worth watching for two main reasons. First, the economy’s unusual dependence on exports to the US means that Mexico’s social and political stability are at stake. Mexican economists believe that, in the worst-case scenario, Trump’s tariffs would cause a depression in their country.
The second reason is that Mexico offers a test case for how to deal with Trump. While Canada has hit back at the US with tough talk and reciprocal tariffs, Mexico’s President Claudia Sheinbaum has played nice. She has emphasised her respect for Trump and has for now refrained from imposing retaliatory tariffs. Sheinbaum has also agreed to send 10,000 more troops to guard the US-Mexican border and deported 29 high-profile drug cartel leaders to America.
Sheinbaum has been rewarded with praise from Trump, who has called her a “wonderful woman”. She is also enjoying sky-high opinion poll ratings at home. Internationally, she has been held up as an example of how to deal shrewdly with Trump’s America, with the New York Times praising her pragmatism and The Economist saluting her “diplomatic nous”.
Reality is more complicated. As Luis de la Calle, a leading trade economist, pointed out to me in Mexico City last week, Canada and Mexico have so far been treated pretty well identically by the Trump administration. Sheinbaum’s critics also say that she is damaging the Mexican economy and future investment by pressing ahead with a plan to fire all the country’s judges and replace them with elected officials.
With the local economy already struggling, Sheinbaum badly needs Trump to cut her a break. But, unfortunately for Mexico, Trump’s grievances go well beyond trade.
Last month, the White House asserted: “The Mexican drug trafficking organisations have an intolerable alliance with the government of Mexico.” Joshua Treviño of the pro-Trump America First Policy Institute commented approvingly that this statement was a “seismic pronouncement that heralds a new era of confrontation between the two nations”.
There is a serious debate in Republican circles about whether the US should use military force to strike the drugs cartels inside Mexico. This month, Defense Priorities, another think-tank that is influential in Trump world, warned: “‘Bomb Mexico’ is increasingly mainstream as a policy option for border security. It would be a grave mistake.” Some influential Mexicans will say quietly that it might not be such a bad thing if the Trump administration pushes their own government to take more aggressive measures against the drugs gangs — perhaps with significant American assistance.
The damage that the cartels are doing to Mexican society is highlighted by the horrifying discovery of an “extermination camp” in the countryside where kidnapped recruits to an organised crime gang seem to have been murdered. More than 100,000 people are registered missing in Mexico, many thought to be victims of the cartels.
But unilateral American military strikes against the cartels — while they might draw cheers from Trump’s base — would put the Mexican government in an impossible position. They would also risk drawing the US into another open-ended conflict without attacking the root causes of the problem, which include the flow of guns from the US to Mexico and America’s own demand for drugs.
By suggesting that tariffs are the right tool to deal with narcotics, illegal immigration and trade simultaneously, Trump has made it harder for Mexico to craft a reasoned response. So Sheinbaum is left trying to humour and flatter the US president, while hoping that he gets distracted or that his advisers make him see reason.
The reality is that tariffs would undermine the most advanced parts of Mexico’s economy and make the country poorer. That downward spiral would be likely to fuel nationalism and anti-democratic populism, while increasing the power of organised crime and driving more Mexicans to try to cross into the US.
Mexico’s greatest hope is that the US itself would recoil from the shared pain caused by a tariff war. Americans rely on cheap, reliable supplies from Mexico for everything from fruit and vegetables to car parts and medical equipment. Higher inflation would be felt quickly in the US, while the promised re-industrialisation of America would be a long time coming, if it ever happened at all.
Impoverishing and destabilising America’s southern neighbour and largest trading partner is obviously a bad idea — for the US and for Mexico itself. But, unfortunately, that is no guarantee that it won’t happen.
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