Failure to heed the U.S. president's calls to curb fentanyl trafficking and immigration enforcement will lead to the imposition of an additional 25% reciprocal tax on imports that do not meet USMCA status.
Should Mexico and Canada fail to comply with the US president's demand to curb fentanyl trafficking and immigration enforcement, they will be subject to a reciprocal 12% tariff, in addition to the 25% tariff imposed on imports that do not comply with USMCA status, economists at the Institute of International Finance (IIF) predicted.
Citing "official sources" to which they had access, they explained that "this structure reinforces preferential treatment for USMCA partners subject to broader compliance conditions."
The reciprocal tariff currently in place for the rest of the world is 10% and will be applied starting April 5 for all imports except those from Mexico and Canada.
Starting April 9, an additional layer of differentiated tariffs will go into effect for countries the U.S. government has identified as engaging in non-reciprocal trade practices, with a broad range of up to 49 percent.
In a first look at the tariff measures that are part of the so-called "Liberation Day" initiative, the team of economists from the world's largest association of financial institutions released two analyses to estimate the measures' impact.
In one of them, titled "Liberation Day: A New Tariff Framework Arrived!", they explained that the current tariff measures represent more than symbolic gestures or temporary disruptions.
Rather, “the Trump administration has radically raised the cost of accessing the US market.”
They reported that the aforementioned officials from that country's government told them that the intention of these measures is to "correct decades of trade imbalances."
FISCAL DISCIPLINE TO IMPROVE EXTERNAL POSITION
In the other analysis released by the IIF experts, entitled The Dollar Paradox: How to Lose a Currency War While Winning It, they explained that “financial engineering alone cannot resolve the United States' external imbalances.
As they put it, "the sustainability of the external position depends on the restoration of long-term fiscal discipline."
They say this because they believe that, despite political commitments to deficit reduction, the current measures implemented by that country's government have had minimal impact on correcting fiscal accounts.
They cited Central Budget Office projections suggesting that federal debt will exceed 118% of GDP by 2035.
The IIF estimates that stabilizing the US debt trajectory requires significant adjustments, including tax increases or spending cuts totaling at least 2.7% of GDP.
In the analysis, led by IIF Chief Economist Marcello Estevao and Senior Economist Jonathan Fortun, they explained that fiscal adjustments must go beyond marginal efficiency gains and instead address fundamental structural pressures such as entitlement reform, health care cost containment, and a more efficient tax system.
THE USMCA AND MEXICAN TARIFFS
As explained by Gabriela Siller, Director of Economic and Financial Analysis at Banco Base, 51.5% of goods shipped outside Mexico are exports that have been granted under the World Trade Organization's (WTO) most-favored-nation principle.
Under this guideline, they pay a special minimum tariff that does not require compliance with the USMCA for components produced by any of the three partners: Mexico, the United States, or Canada.
The remaining 48.8% of Mexican exports are within the USMCA, and the tariffs imposed on Mexico are affecting precisely that 51.5% of exports.
Tariffs of 25% on goods shipped outside the USMCA are still in effect: 25% on steel and aluminum, and another 25% on autos, with exemption for parts made in any of the three partners to the agreement.
BANAMEX ANTICIPATES A 0.1% DROP IN GDP
In a special note, Banamex analysts point out that it is still unclear how long these tariffs will remain in effect, nor which countries will achieve rapid and effective negotiations that will allow them better conditions for selling their products to the United States.
They emphasize that these policies tend to last for several years, as evidenced by the steel and aluminum tariffs imposed by Donald Trump during his first term and maintained (and remain in place) during the Biden administration.
They also mention that the negative impact on prices and activity in some sectors of the increase in the effective tariff rate, which would rise from 2.3% in 2024 to 21.9% in 2025, and potential retaliation, are factors that could encourage negotiations for its prompt elimination.
Under this scenario, they now see Mexico's growth in the range of -0.1 to 0.6%, up from the current 0.0%, a figure they will specify shortly.
