Almost 30% of Mexican Exports From 2024 Subject to 25% Tariffs Now
The only two countries in the world whose trade deals with the U.S. are still being honored are Mexico and Canada, a Mexican trade expert said, meaning the impact of fentanyl tariffs, steel and aluminum Section 232 tariffs, and auto and auto parts tariffs on Mexico's exports to the U.S. is not as dramatic as initially feared. Still, nearly 30% of the $505.9 billion in goods exported to the U.S. last year would face 25% additional tariffs now, either because the goods are subject to a Section 232 action, or they are goods that cannot meet USMCA rules of origin, an expert said.
Sign up for a free preview to unlock the rest of this article
If your job depends on informed compliance, you need International Trade Today. Delivered every business day and available any time online, only International Trade Today helps you stay current on the increasingly complex international trade regulatory environment.
Eduardo Díaz, a former NAFTA dispute panelist and lawyer working for the Mexican government's mission to the World Trade Organization, said Mexico's politicians have been "trying to play extremely nice, to get as many carve-outs as possible. So far, it has worked out."
Díaz, now a partner at Agon, which provides regulatory advice to businesses operating in Mexico, told a webinar audience convened by the Automotive Industry Action Group May 8 that the Mexican government hasn't been able to convince the U.S. that completed cars from Mexico that meet USMCA rules of origin should be spared a 25% tariff.
Díaz said Mexico assembled 4 million light vehicles in 2024, and 3.5 million were exported. More than three-fourths of the vehicle exports headed to the U.S.; combined exports to Canada and the U.S. were 90% of the vehicle exports.
Sergio Gomez Lora, CEO of business intelligence firm in Mexico IQOM, who worked on the implementation of NAFTA in the Mexican government, said during the AIAG event that autos and light trucks that owe 25% Section 232 tariffs are 15% of Mexican exports; aluminum and aluminum derivative products that owe 25% Section 232 tariffs are 4% of its exports and 25%-taxed steel and steel derivatives are 2% of its exports.
While 78% of goods could be exempt from fentanyl tariffs if the products qualify under USMCA, the Mexican government estimates that about 15% of the products that didn't claim USMCA benefits in 2024 cannot comply now, and those accounted for about $38 billion worth of goods last year.
For those goods that don't comply with USMCA rules of origin, Gomez Lora noted, they are more costly than sourcing from all other countries (other than China). That's because every other country has a 10% reciprocal tariff, but Mexico and Canada have 25% tariffs imposed over border issues.
The administration decided to spare USMCA-qualifying auto parts from the 25% 232 action. Gomez Lora said Mexico exported $122 billion worth of auto parts last year. According to the Office of the U.S Trade Representative, $16.1 billion worth of Mexican parts in 2023 paid duty rather than claiming the benefit. The 2024 report said, "These imports from Mexico were distributed among many different categories of automotive parts, with the leading categories including parts of bodies, diesel engines, and steering wheels."
Auto parts exports to the U.S. from the rest of the world totaled $230 billion, Gomez Lora said; with the exception of the U.K., all those parts owe a 25% tariff. However, carmakers can get refunds on some of those tariffs or on tariffs for non-qualifying North American parts, after sharing information with the Commerce Department.
Gomez Lora said that if the American government wants a revival of manufacturing, Mexico is part of the solution, not part of the problem. He said that Canadian and Mexican goods have the highest U.S. content in their exports.
Díaz noted that the auto industry is 4.7% of the country's GDP, 23% of its manufacturing GDP, and that Mexico is the third-largest producer of auto parts in the world.
When asked by International Trade Today if he expects USMCA-compliant parts to continue to be allowed to enter the U.S. duty-free for the next 3.5 years, he replied, "I really hope that’s the case." He said he thinks Detroit's big three automakers depend on Mexican parts, and he thinks "there is very high pressure" from those companies on the administration to ease up on the auto Section 232 action.
However, he joked that these days, "My crystal ball has a two-hour expiry."
Both men said that U.S. officials are anxious that Chinese automakers will set up manufacturing in Mexico to get a foothold in the U.S. market.
Díaz said that Mexican officials have shared data with U.S. negotiators about the very small proportion of foreign direct investment in Mexico coming from China, and how U.S. firms' investment in Mexico is about half the FDI. He said that when Mexico says, "These are the numbers," the Trump administration says: "We don’t believe you."