Mexican Economy Faces Sharp Slowdown Under U.S. Tariff Scenarios

Barclays Bank warns Mexico’s economy will experience significantly reduced growth when factoring in potential US tariffs on imported Mexican products.

The bank outlined multiple scenarios in their analysis titled “Schrödinger’s Tariffs,” capturing the uncertainty surrounding trade relations. The most severe scenario involves a 25% tariff on all Mexican products entering the US.

This would halt Mexican economic growth completely in 2025 and limit it to just 1% in 2026. Such tariffs would force Mexico’s central bank to abandon planned interest rate cuts.

A moderate scenario featuring 12.5% tariffs looks marginally better. Mexico would achieve 0.3% growth in 2025 and 1.4% in 2026. Barclays maintains its base forecast of 1.2% growth this year without widespread tariffs.

The US-Mexico economic relationship creates particular vulnerability for Mexico. The country sends approximately 83% of its exports to the United States. US-Mexico trade reached nearly $900 billion last year, making Mexico America’s largest trading partner.

Mexican Economy Faces Sharp Slowdown Under U.S. Tariff Scenarios. (Photo Internet reproduction)

Both tariff scenarios would trigger peso depreciation and revive inflation pressures. The currency effects would partially offset rising costs. Mexico might implement import permits or quotas rather than retaliatory tariffs.

Potential Economic Impact of US Tariffs on Mexico

Business confidence already suffers from tariff threats. Tesla paused plans for a new Mexican factory until after the US election. Economists warn even small tariff increases could spark unemployment and poverty in Mexico.

Long-term damage poses the greatest concern for Mexico’s economy. Barclays calculates Mexico’s growth potential would drop from 2.3% to 1.5% regardless of which tariff rate applies. This reduction represents a permanent economic handicap.

Sectors facing the greatest threat include automotive manufacturing, electronics, machinery, agriculture, and textiles. Northern and central Mexican states heavily dependent on export manufacturing appear most vulnerable.

S&P Global Ratings estimates the peso could weaken by approximately 10% on average if tariffs take effect. Their analysis indicates Mexico’s GDP would contract 0.5% in 2025 if tariffs remain throughout the year.

The uncertainty also threatens Mexico’s nearshoring efforts. These initiatives had already increased Mexico’s GDP by around 1% before 2022, with additional gains now at risk. President Sheinbaum continues promoting foreign investment through her Plan México strategy despite these headwinds.