Mexican president warns Trump tariffs will worsen inflation, kill jobs

11:29 am Tuesday, November 26th, 2024

By Sarah Morland and Brendan O’Boyle

MEXICO CITY (Reuters) -Mexican President Claudia Sheinbaum said she would send a letter to U.S. President-elect Donald Trump on Tuesday to urge dialogue and cooperation following his threat of across-the-board tariffs of 25% on Mexico and Canada.

“One tariff will follow another and so on, until we put our common businesses at risk,” Sheinbaum told a press conference, warning that tariffs would cause inflation and job losses in both countries.

Sheinbaum added she would also seek a call with Trump and send a letter to Canadian Prime Minister Justin Trudeau. Trump, who takes office on Jan. 20, said on Monday he would impose a 25% tariff on imports from Canada and Mexico until they clamped down on drugs, particularly fentanyl, and migrants crossing the border.

Mexico is the United States’ top trade partner as of September, representing 15.8% of total trade, followed by Canada at 13.9%. The U.S. is also Mexico’s top trade partner.

“What sense is there?” in escalating cross-border tariffs, Sheinbaum added, underscoring that they would hit particularly hard U.S. carmakers with plants in Mexico, such as General Motors and Ford.

Mexico’s automotive industry is the country’s most important manufacturing sector, accounting for over 35% of manufactured exports by value. The United States is by far the dominant destination for vehicles made in Mexico, with up to 79% of them heading north across the border.

Mexico represents nearly 25% of all North American vehicle production.

Tariffs could violate the United States-Mexico-Canada Agreement, a trade deal the countries signed in 2020 during Trump’s first administration.

The Mexican peso weakened some 1.3% in early trading on Tuesday.

Analysts at Banco BASE said in a note the peso was among the worst hit currencies globally by aversion to risk.

“The likelihood that his second mandate is more radical is increasing, which represents a risk for Mexico’s export sector,” it said.

Sheinbaum said her administration had shown Mexico’s willingness to help fight the fentanyl epidemic in the U.S., that apprehensions of migrants at the border were down, and that migrant caravans were no longer arriving at the U.S.-Mexico border.

However, Sheinbaum noted that criminal groups in Mexico were still receiving guns from the U.S. She said the region’s shared challenges required cooperation, dialogue and reciprocal understanding.

“We do not produce weapons, we do not consume the synthetic drugs. Unfortunately we have the people who are being killed by crime that is responding to the demand in your country,” she said.

Capital Economics economist Giulia Bellicoso said that “downside risks are especially high for Mexico, since the country is particularly vulnerable to Trump’s proposed policies.”

While regional markets have been generally resilient, possibly because investors were already pessimistic about the prospects of a second Trump government, the coming challenges would likely have a negative impact on Latin American assets and currencies, Bellicoso said.

(Reporting by Mexico City bureau; Editing by Brendan O’Boyle and Alistair Bell)