By Sarah Morland and Brendan O’Boyle

MEXICO CITY (Reuters) – Mexican President Claudia Sheinbaum on Tuesday warned U.S. President-elect Donald Trump of dire economic consequences for both countries from tariffs, while urging dialogue 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 said in a letter to Trump, which she read at a press conference and planned to send later in the day, 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 late 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.

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.

Financial analysts reacted to Trump’s announcement w commentaries ranging from pessimism to cynicism.

At CIBanco, analysts said they believed the threat was a negotiation tactic, and as these would also damage the U.S. economy, the final result was likely to be less severe.

The Mexican peso weakened some 2% on Tuesday, aggravating a steep six-month decline.

Capital Economics economist Giulia Bellicoso said tariffs would likely hit Mexican equities by denting optimism about near-shoring – a trend of U.S. firms setting up production facilities in Mexico – and curtailing investment.

“We expect Trump to start another trade war,” she said.

Sheinbaum said she was confident Mexico would reach an agreement with Trump but that should the U.S. impose tariffs, Mexico had a plan to shore up its other trade relationships.

“We are not only looking to the north, but also to the south and to the European continent,” she said. “Mexico is strong and we will always come out on top,” she said.

(Reporting by Sarah Morland, Brendan O’Boyle, Raul Cortes, Natalia Siniawski and Rodrigo Campos; Editing by Alistair Bell)

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