The United States has imposed sweeping reciprocal tariffs on 185 countries, yet Mexico and Canada have managed to sidestep the harshest of these measures, thanks to the US-Mexico-Canada Agreement (USMCA) negotiated by President Donald Trump during his first tenure in 2018. While this exemption has provided some relief, lingering economic uncertainties and fluctuating political conditions keep the spectre of tariffs looming over Mexico’s trade future.

The announcement by Trump of a 10% baseline tariff—alongside targeted duties of up to 34%—has sent shockwaves through the global trade system. Mexico and Canada, though, have retained their preferential access to the US market under USMCA, a deal that streamlined North American trade and strengthened labour and environmental protections, provided their exports comply with the agreement’s strict rules of origin. According to El Financiero, this strategic advantage could bolster Mexico’s competitiveness, especially in high-tech manufacturing, a sector where the country is vying to become a leading supplier to the US.

But while avoiding the broad application of these tariffs, Mexico is still subject to sector-specific duties, including those on steel, aluminium, and automotive components. Moreover, goods that do not meet USMCA origin requirements face a significant 25% tariff, potentially reshaping supply chains in the region. Economic experts argue that these policies could paradoxically encourage greater regional integration, incentivising businesses to increase their operations within the trade bloc to leverage the preferential treatment.

"It's not in our best interest for the United States to alienate our two closest trading partners," Margaret Kidd, an instructional associate professor of supply chain and logistics technology at the University of Houston, told Business Insider.

Mexico-US trade reached $945bn in 2024, with Texas serving as the primary corridor for most goods exchanged. Kidd warned that the tariffs imposed on Mexico disproportionately impact border states whose economies are heavily dependent on cross-border commerce. This may help explain why Trump has, for now, spared his close neighbours from the wrath of heavy tolls that hit many countries worldwide.

While Mexico has sidestepped the most aggressive tariff measures, its trade relationship with the US remains vulnerable to regional tensions. A key factor in maintaining favourable trade terms is Mexico’s cooperation on US priorities, particularly migration control and fentanyl trafficking. A Bloomberg report highlighted that should Mexico meet US demands in these areas, the tariff rate on non-USMCA-compliant goods could drop to 12%, a significant reduction from the current 25%.

Despite these diplomatic levers, concerns persist. Moody’s Analytics director Alfredo Coutiño cautioned that Mexico’s strong trade surplus with the US makes it a perennial target for protectionist policies. While the latest tariff decision appears to favour the Central American country in the short term, the uncertainty surrounding future US trade policies—especially under a politically volatile administration—keeps the risk of new tariffs alive. The business community remains on alert, knowing that policy shifts could alter Mexico’s standing overnight.

Financial markets initially responded positively to the exemption from new US tariffs. The peso appreciated slightly against the dollar, and investor sentiment stabilised, despite broader volatility in global markets. However, analysts warned that unresolved trade concerns could generate renewed instability in the near future, particularly as key tariff measures on automobiles and auto parts come into effect in April and May.

According to El País, the country remains heavily reliant on the US market, with over 80% of its exports directed north. This underscores the urgency for Mexico to not only rigorously comply with USMCA regulations, but also to diversify its trade partnerships to mitigate exposure to US trade policies.

Recognising the long-term risks of overdependence on erratic US trade policies, President Claudia Sheinbaum has announced an economic strengthening programme aimed at reinforcing Mexico’s industrial base. As reported by El Financiero, the plan includes initiatives to boost domestic manufacturing capacity, particularly in the automotive sector. Sheinbaum, who has vowed not to pursue an "eye for an eye" approach and stood out for her ability to negotiate with Trump, claimed the approach is not retaliatory but rather a "proactive effort" to solidify Mexico’s economic position amid shifting trade dynamics.

Infrastructure projects, including expanded railway investments, are also part of this broader strategy. With a budget allocation of MXN157bn for 2025, the government aims to modernise transportation and logistical networks to support industrial growth and facilitate regional trade under USMCA.

Mexico’s ability to maintain tariff exemptions under USMCA is a crucial advantage in an increasingly protectionist global economy, and while the deal is up for review in 2026, Trump's flurry of tariffs could expedite negotiations, potentially broadening the set of goods covered. Still, political conditions tied to US-Mexico relations, coupled with existing sector-specific duties, mean that economic uncertainty remains. 

"Mexico is a very open economy (its trade-to-GDP ratio is 73%), heavily reliant on global value chains that are geared to the US. Irrespective of our relative position in terms of tariffs, any measure that affects the trade system’s current operation, as well as the health of the US economy, will have an impact on Mexico," Sergio Luna, Grupo Financiero Mifel’s chief economist, told Americas Quarterly.

"In that regard, the indirect effects of tariffs on US activity and inflation imply an additional challenge for Mexico´s macroeconomic prospects."