ProdensaMar 7, 2025 9:06:53 AM4 min read

Factory Focus: Weekly Vitals | March 7, 2025

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Factory Focus Weekly Insights for Manufacturing in Mexico

It's the blog for manufacturing executives operating in Mexico. Designed as a concise, high-value fact sheet, it delivers critical weekly updates on legislative and regulatory changes that could impact your business.

US-Canada Relationship Remains Tense

Canadian Prime Minister Justin Trudeau has acknowledged ongoing trade tensions with U.S. President Donald Trump, predicting the “trade war” will persist in the near future. Following a tense 50-minute phone call, Trump imposed 25% tariffs on Canadian products, temporarily exempting the auto sector. While Trump postponed some tariffs for a month, Canada has maintained $21 billion in retaliatory tariffs and plans further measures. Trump accused Trudeau of using tariffs for political gain, while Trudeau criticized Trump’s approach. Ontario and British Columbia have introduced countermeasures, including higher electricity rates for U.S. states and restrictions on American alcohol sales. The escalating tensions underscore the fragility of Canada-U.S. trade relations amid Trump’s aggressive economic policies.

Source: AP NEWS

Tariffs to Mexico are Suspended Until April 2nd

Donald Trump announced a one-month tariff exemption on imports from Mexico under the United States-Mexico-Canada Agreement (USMCA). This exemption, effective until April 2, applies to goods traded under the agreement, covering most North American commerce. The decision follows market concerns after Trump imposed a 25% tariff on Mexican imports earlier in the week. Trump stated that the exemption was agreed upon after discussions with Mexico’s President Claudia Sheinbaum. He emphasized cooperation in border security and drug trafficking prevention. Howard Lutnick, U.S. Secretary of Commerce, confirmed that most USMCA-traded products would be included in the exemption, though additional tariffs could be announced in April.

The exemption particularly benefits the automotive sector. The White House announced that General Motors, Ford, and Stellantis secured a 30-day reprieve from tariffs on vehicles meeting USMCA rules. Automakers have pledged to increase U.S. investments but seek policy stability. Despite this temporary relief, Trump has hinted at future “reciprocal” tariffs aimed at matching U.S. trade barriers with those of other countries. Investors remain cautious, with markets fluctuating in response. Industry leaders continue lobbying for broader exemptions and clarity on future trade policies.

Source: NEW YORK TIMES

Could They Return?

On March 4, the U.S. government was set to implement a 25% ad valorem tariff on nearly all imports from Mexico, with limited exceptions for humanitarian goods such as medicines, donated food, and clothing. This decision was part of a broader strategy to pressure Mexico on border security, migration, and trade imbalances.

While the tariffs have been paused, they were part of an ongoing pattern of trade uncertainty that businesses cannot afford to ignore. The possibility of their return—either under the current administration or in the future—remains high, making proactive planning essential.

What Industries are at Risk?

The Mexican economy relies heavily on exports to the U.S., with nearly 80% of its exports going north. The now-suspended tariffs would have affected a broad range of industries, including:

Automotive Sector: The largest and most vulnerable industry, given the deep integration of North American supply chains. Car parts and assembly plants in Mexico feed directly into U.S. manufacturing.
Manufacturing & Electronics: Machinery, appliances, and electronic components form a major part of Mexico’s exports. A tariff hike would have increased costs across multiple industries, including consumer goods and industrial equipment.
Agriculture & Food Exports: Fruits, vegetables, and processed foods from Mexico are crucial for U.S. supply chains. Higher tariffs would have led to price increases for American consumers and losses for Mexican farmers.
Energy & Raw Materials: Mexico plays a key role in supplying fuel, minerals, and other critical materials to U.S. industries. Tariffs on these goods would have impacted everything from construction to logistics.

Market Reactions & Economic Consequences

Even short-lived, their mere announcement caused significant economic uncertainty:

Stock Market Declines: U.S. and Mexican markets reacted negatively to the news, reflecting concerns over economic slowdowns.
Currency Fluctuations: The Mexican peso depreciated as investors feared an economic downturn.
Inflation Risks: Higher import costs from Mexico would have raised prices for U.S. businesses and consumers, further fueling inflation.

With trade accounting for a large percentage of GDP for both nations, any disruption to this economic relationship has far-reaching consequences.

Why Businesses Should Stay Alert

Even though the tariffs have been paused, companies must prepare for potential future policy shifts. The political landscape remains uncertain, and tariffs could return depending on economic conditions, international negotiations, or changes in administration.

Key Actions to Take Now:

Conduct an Origin Analysis: Companies should assess their supply chain dependencies to determine their exposure to future tariffs.
Diversify Suppliers: Reducing reliance on any single country for raw materials or components can help mitigate trade risks.
Monitor Trade Policy Changes: Businesses should stay informed on USMCA compliance updates, political developments, and tariff negotiations.
Engage in Proactive Risk Management: Working with customs brokers and trade experts can help companies develop strategies to minimize cost increases if tariffs return.