Trump’s tariffs would reverse decades of integration between US and Mexico

MEXICO CITY – When Mr Dennis Nixon started working at a regional bank in Laredo, Texas, in 1975, there was just a trickle of trade across the border with Mexico.

Now, nearly US$1 billion (S$1.4 billion) of commerce and more than 15,000 trucks roll over the line every day just half a kilometre from his office, binding the economies of the United States and Mexico together.

Laredo is America’s busiest port, and a conduit for car parts, petrol, avocados and computers.

“You cannot pick it apart any more,” Mr Nixon said of the US and Mexican economies.

Thirty years of economic integration under a free trade deal has created “interdependencies and relationships that you don’t always understand and measure, until something goes wrong”, he said.

Now that something has happened.

On Feb 1, President Donald Trump

slapped 25 per cent tariffs

on Mexican imports as he looks to pressure Mexico’s government to do more to stop migrants and drugs from coming across the border.

Mr Trump also hit most Canadian goods with a 25 per cent tariff and imposed a 10 per cent tax on Chinese imports.

A long-time proponent of tariffs and a critic of free trade deals, Mr Trump seems unafraid to upend America’s closest economic relationships.

He is focusing on strengthening the border against illegal immigration and the flow of fentanyl, two areas that he spoke about often during his 2024 campaign.

But Mr Trump has other beefs with Mexico, including the economic competition it poses for US workers.

He and his supporters believe that imports of cars and steel from Mexico are weakening US manufacturers.

And they say the US-Mexico-Canada Agreement, the trade deal Mr Trump signed in 2020 to replace the North American Free Trade Agreement (Nafta), needs to be updated – or perhaps, in some minds, scrapped.

Many businesses say ties between the countries run deeper than most Americans realise, and policies like tariffs that seek to sever them would be painful.

Of all the world’s major economic partners, the US and Mexico are among the most integrated – linked by business, trade, tourism, familial ties, remittances and culture.

It is a closeness that at times generates discontent and efforts to distance the relationship, but also brings many benefits.

“Our countries have a symbiotic relationship,” said Mr Juan Carlos Rodriguez, managing director in Tijuana for Cushman & Wakefield, one of the world’s biggest commercial real estate companies.

“Our economies are so intertwined that it would take decades to decouple,” Mr Rodriguez said. “Such a scenario would have a catastrophic impact on Mexico.”

A natural partner

Mexico’s immense reliance on trade with the US dates back at least to the 1960s, when manufacturers began opening factories just across the border as a response to climbing labour costs in the US and Japan.

Trade picked up when Nafta took effect in 1994.

For many Americans, that trade pact is now synonymous with offshoring and decimated factory towns.

But economists calculate that many parts of the US benefited as the agreement increased trade and economic activity.

Other parts of the US were severely hurt as manufacturers moved to Mexico in search of cheaper labour. As factory towns hollowed out, that ended up fuelling a trade backlash, helping pave the way for anti-trade candidates like Mr Trump to win office.

In an interview, Mr Peter Navarro, the president’s senior counsellor for trade and manufacturing, called Nafta a “catastrophe” and bad for both Mexico and the US.

“The fact of the matter is China was so much worse that people tend to forget how bad Nafta was,” he said.

In his first term, Mr Trump threatened tariffs on Mexico over border issues, but instead settled for a deal.

He also repeatedly threatened to withdraw from Nafta, but instead decided to renegotiate it.

His advisers added provisions to the pact they believed would bolster US steel and auto manufacturing, but some now say they have fallen short.

Since Mr Trump was last in the White House, Mexico’s importance to the US economy has grown.

The Covid-19 pandemic disrupted global supply chains and started a “nearshoring” boom.

Companies were already looking to move out of China, to avoid tariffs Mr Trump imposed there, as well as rising costs and political risk.

Manufacturers rushed to open plants in Mexico, seizing on the country’s low-cost industrial base and proximity to the US.

Those changes helped make Mexico the US’ top trading partner in goods in 2023. As trade between the countries has expanded, so has the bilateral trade deficit with Mexico, a metric that Mr Trump is particularly focused on.

American consumers may be as reliant on foreign products as ever. But economists argue that imports from Mexico can have quite different implications for the US economy than imports from China.

That is because there are many integrated supply chains that run back and forth across North American borders.

Goods such as cars, electronics and blue jeans are volleyed back and forth among the US, Mexico and Canada as they are turned from raw materials into parts and then final products.

According to economists at S&P Global, of the imports coming into the US from Canada and Mexico, more than 18 per cent of their value was created in the US, before being sent to those countries. That is far more than the proportion for other countries, and a sign of how closely the economies are integrated.

Roughly US$800 billion worth of goods were transported across the border in 2024, an amount that would position the US-Mexico border in striking distance of the world’s 20 largest economies.

The two economies rely on each other for their energy needs. Mexico, which depends on the US for an estimated 70 per cent of its natural gas consumption, is more vulnerable to any disruptions.

But the US also imports about 700,000 barrels of crude oil a day from Mexico. Imposing import taxes on such cargoes could produce increases in fuel prices, particularly diesel, energy analysts warn.

Food production is also closely integrated.

Mexico supplies roughly half of America’s fresh fruit and vegetables, and that proportion rises in winter months. Mexico also emerged in 2024 as the top market for American agricultural exports, totalling US$30 billion.

Mr Bob Hemesath, a fifth-generation farmer in north-eastern Iowa, said Mexico was the biggest buyer of American corn and also a big purchaser of hogs, both of which he produces.

Tariffs would “put an added cost on a product that doesn’t need to be there, and it’ll drive those countries to go look somewhere else”, Mr Hemesath said.

He spoke by phone from his farm on an unseasonably warm day, where he had just finished power-washing a hog facility.

“It puts me as a farmer at an economic disadvantage,” he said. “Although I understand wanting to use tariffs as a negotiating tool, what harm do you do?”

Some Trump officials think corn exports have not been entirely benign.

Mr Navarro said Nafta kick-started America’s illegal immigration problem, because when the US began exporting corn to Mexico after the trade pact took effect, that put Mexican agricultural workers out of jobs, sending some of them into the US.

“That’s where that began, our illegal immigration problem,” he said. NYTIMES