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| Mexico Tariffs |
Mexico's economic outlook for 2025 remains uncertain due to the potential rise in US tariffs on Mexican goods. The country's association of finance executives, IMEF, held its 2025 GDP growth forecast steady at a modest 0.1%, but the forecast could change if US tariffs are raised to 30%, as threatened by President Donald Trump. The forecast was made before Trump's July 12 statement regarding the tariff increase, which is set to begin on August 1.
Job Losses and Economic Risks Underline the Threat
The risk to Mexico’s economy is compounded by growing job losses. The country’s social security administration, IMSS, reported a net loss of 139,444 formal jobs in Q2, prompting IMEF to reduce its job creation forecast for 2025 from 190,000 to 160,000. This marks the seventh downgrade this year. The job losses, particularly in the second quarter, were described as the worst since the pandemic, raising concerns over the overall employment situation in the country. If this trend continues, IMEF warned that formal job creation could effectively stagnate by year-end.
The automotive sector, a major component of Mexico's exports, is particularly vulnerable to the tariff threat. Some auto plants stopped production after the imposition of a 25% tariff in April, though they did not immediately lay off workers. Instead, employees were sent home with half pay. However, if the tariff issue remains unresolved within the next 60-90 days, IMEF predicts significant layoffs, which could exacerbate the economic downturn.
The Impact of Higher Tariffs on Mexico's Economy
The potential rise in tariffs from 25% to 30%, effective August 1, would significantly affect various sectors. IMEF projects that the effective average tariff rate could increase from 4% to 15%. While some exports are either exempt or subject to reduced tariffs due to regional content rules, a substantial portion of auto exports, estimated at 8–10%, would face the full 30% duty. This sharp tariff increase could potentially push Mexico’s GDP forecast into negative territory if the tariffs are not postponed or canceled, as they have been in previous instances.
In response to these economic challenges, IMEF has also revised its currency outlook for the Mexican peso. The peso is expected to end 2025 at Ps20.1/$1, slightly stronger than the previous estimate of Ps20.45/$1. However, IMEF warns that rising interest rates in Japan and falling Mexican rates could put additional pressure on the peso once the US dollar strengthens.
ScrapInsight Commentary
The looming tariff increase presents a significant challenge for Mexico’s economy, especially in sectors like automotive manufacturing. While the immediate impact on GDP growth might be small, prolonged job losses and higher tariffs could push the economy toward contraction. This development is particularly relevant for the global metal and scrap industries, which may face further disruptions in trade and production.
