Cross-border 🇺🇸🇲🇽Market Update
March Cross-Border Market Update, Vol. XVIII
Monthly cross-border updates curated with insights from our experts.
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Welcome to this month’s Market Update, where we analyze the latest developments in cross-border trade, curated by Nuvocargo’s team of experts. With tariff discussions dominating the headlines, we break down the key impacts, provide insight into evolving trends, and outline what lies ahead for trade between the U.S. and Mexico, including the latest developments in tariffs, supply chains, and nearshoring opportunities.
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A look back: What happened in February?
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Market Updates
Trade tensions between the U.S. and Mexico persist, with tariff policies shifting unpredictably. The 25% tariff on all Mexican imports was initially set for March 4, then postponed to April 2, but the latest confirmation now sets it back to March 4. With ongoing negotiations and rapid policy shifts, further changes remain possible. Despite the delay, uncertainty remains as discussions continue. Meanwhile, President Trump confirmed a 25% tariff on steel and aluminum imports from Mexico, effective March 12, which, if implemented, will impact automotive production and construction, raising costs for manufacturers on both sides of the border.
Looking Forward: What to Expect in March?
Food for Thought: Inside the US-Mexico Trade Lane
Tariff Uncertainty Defines This Month
President Donald Trump has confirmed that tariffs on Canada and Mexico will proceed as scheduled following a temporary suspension, even though uncertainty remains as negotiations continue, with the potential for further developments as both countries engage in discussions with the U.S. government.
• A 25% tariff on all Mexican imports is now confirmed to take effect on March 4, 2025, after initially being postponed to April 2. Meanwhile, a broader 25% tariff on steel and aluminum imports from all countries remains scheduled for March 12, though further adjustments remain possible as discussions continue.
• Negotiations between the U.S. and Mexico are ongoing, with Mexican President Claudia Sheinbaum expressing optimism about reaching an agreement before the deadline.
• In a strategic move to mitigate the impending U.S. tariffs, Mexico is considering imposing levies on Chinese imports.
• Additionally, President Trump has indicated that further reciprocal tariffs on other countries could commence as early as April.
Fitch Ratings warns that Mexico could enter a recession in 2025 as export revenues decline and production costs rise. A 25% tariff on dutiable imports—representing 11% of Mexican exports—would increase the effective tariff rate to 2.8%, leading to a 0.8 percentage point drop in GDP by 2026. If tariffs apply to all imports, the impact could be far worse, cutting GDP by an estimated 3.0 percentage points by 2026 and likely triggering a recession in 2025. The complex nature of U.S.-Mexico supply chains could amplify economic disruptions. Fitch projects Mexico’s GDP growth at 1.1% in 2025 and 1.7% in 2026 under the status quo.
The Economic Shockwave: A Looming Recession?
With new tariffs looming, key Mexican industries are bracing for disruptions that could reshape the cross-border trade landscape. Some sectors, particularly those deeply embedded in U.S. supply chains, face heightened risks due to their reliance on exports. While certain industries have mitigating factors that may help cushion the blow, others could experience severe economic consequences, including billions in potential losses. Below is a breakdown of the industries most at risk and their estimated financial impact.
Steel & Aluminum (Confirmed)
• While Mexico is not the largest supplier of these materials to the U.S., the tariff woudl raise costs for manufacturers in key sectors such as automotive and construction.
• Without mitigation, exports could drop by 15-20%.
• Peso devaluation reduces impact to 8-12%.
• Potential loss: $3-5 billion.
Automotive Industry (Most Vulnerable)
• Accounts for 25% of Mexico’s total exports.
• Without mitigation, exports could drop by as much as 15-20%, according to Wilson’s Center Analysis
• Due to supply chain rigidity and peso devaluation, the effective export decline is estimated at 8-12%.
• Potential loss: $12-18 billion.
Electronics & Machinery (High Vulnerability)
• Represents 16% of Mexico’s exports.
• High reliance on imported components increases production costs.
• Without mitigation, exports could drop by 12-18%.
• Peso devaluation and supply chain rigidity reduce the impact to 6-10%.
• Potential loss: $8-14 billion.
Agriculture (Avocados, Tomatoes, Other Produce) (Moderate Vulnerability)
• Mexico is the top supplier of fresh fruits and vegetables to the US.
• Tariffs increase costs, but US consumers have limited substitution options.
• Without mitigation, exports could drop by 10-15%.
• Peso devaluation and demand rigidity reduce the impact to 4-7%.
• Potential loss: $2-3 billion.
Textiles & Apparel (High Vulnerability)
• Price-sensitive market with strong competition from Asia.
• US retailers may switch to Vietnam, Bangladesh, or China.
• Without mitigation, exports could drop by 20-25%.
• Peso devaluation reduces impact to 12-18%.
• Potential loss: $1-2 billion.
Industries at a Crossroads: Who’s Most at Risk?
Tariff Implementations and Trade Status
Among the key issues to watch:
➡️ Tighter rules on Chinese exports via Mexico: There is growing concern that China is using Mexico as a backdoor into the U.S. market. Mexico has already introduced higher tariffs on textiles and is working on “Plan Mexico,” which aims to substitute 15% of imported yarns with domestic production.
➡️ Higher local content requirements in the auto industry: The USMCA currently requires 75% of vehicle components to be sourced from North America, but this could be raised to as much as 100%. While this presents challenges for automakers dependent on foreign suppliers, it also offers Mexico and Canada a significant opportunity to attract new investments and strengthen domestic manufacturing. With the automotive sector accounting for 38% of U.S. imports from Mexico and Canada, tighter content rules could drive further regional integration and investment in local supply chains.
➡️ Potential restructuring of USMCA into bilateral agreements: Given the imbalance in trade volume between the U.S. and its two partners (70% of Canadian exports and 80% of Mexican exports go to the U.S.), some experts speculate that USMCA could transition into separate bilateral agreements.
➡️ Energy and critical minerals policy changes: Mexico, Canada, and the U.S. could expand agreements on lithium, copper, and other minerals essential for EVs and renewables. The U.S. imports over 70% of its critical minerals from China, making North American alternatives crucial. Canada has increased exploration spending by 62%, while Mexico, the world’s largest silver supplier, is expanding its role in copper and zinc exports. These shifts present an opportunity for Mexico and Canada to attract investment and strengthen supply chains.
➡️ Labor and wage reforms: The U.S. may push for higher wage standards in key industries, similar to the existing requirement that 40-45% of auto manufacturing labor be paid at least $16 per hour.
Trump 2.0 and the Future of the North American Trade Bloc
In recent weeks, Nur Cristiani shared key insights on nearshoring with Bridge49 and Nuvocargo, offering a strategic perspective on the evolving trade landscape. Now, J.P. Morgan, in its latest analysis, examines the potential future of the North American trade bloc amid shifting U.S. policies.
President Trump has instructed the U.S. Trade Representative to review the USMCA trade agreement ahead of the scheduled July 2026 review process, with an accelerated report expected by April 1, 2025. The administration has hinted that recent tariff announcements may serve as a negotiation tactic to bring Mexico and Canada to the table sooner.
Signs of Strength Despite Trade Tensions
Despite tariff concerns, Mexico’s trade strength continues to show resilience.
Automotive Trade Surplus at Record High: Mexico’s automotive sector continues to demonstrate strength despite trade uncertainties. In 2024, exports to the U.S. reached $181.4 billion, increasing Mexico’s market share of U.S. automotive imports to 38.5%, up from 37.8% in 2023. This marks the fifth consecutive year of growth, reinforcing Mexico’s role as a key supplier. While January 2025 exports saw a temporary 13.7% decline, the sector’s resilience and long-term trajectory suggest continued competitiveness amid shifting trade policies.
Nearshoring Momentum Remains Strong: Mexico’s advanced technology exports to the U.S. surged 35.2% in 2024, reaching $102.3 billion, according to the U.S. Department of Commerce. This marks the first time Mexico surpassed the $100 billion threshold in high-tech exports, making it the second-largest supplier to the U.S., only behind China. The top categories in this classification include aerospace, biotechnology, electronics, flexible manufacturing, life sciences, nuclear technology, and optoelectronics.
Mitigating Factors: What Could Lessen the Impact?
Despite the risks, several factors could soften the economic blow of tariffs:
Peso Devaluation: The Mexican peso depreciated by 23% against the U.S. dollar in 2024, closing the year at 20.82 MXN/USD, compared to 16.97 MXN/USD in 2023. This devaluation makes Mexican goods cheaper for U.S. buyers, effectively offsetting a portion of the 25% tariff. If a product cost $100 in 2023, it now effectively costs $77, neutralizing 23 percentage points of the tariff impact, leaving only a 2% net increase in cost for U.S. buyers. However, this also raises imported input costs, which could increase production expenses in certain industries.
Strong U.S. Consumer Demand: The U.S. economy grew by 2.5% in 2024, with robust consumer spending, particularly in industries that depend on Mexican imports. Many key exports, including automobiles, electronics, and agricultural products, have relatively inelastic demand, meaning that despite higher prices, American consumers are likely to continue purchasing them. If 50% of the tariff cost is absorbed by consumers, the net demand decline could be cut in half. However, price-sensitive goods like textiles could see lower demand.
Supply Chain Rigidity: Mexico’s proximity to the U.S. offers a logistical advantage that is difficult to replicate in other countries. The U.S. relies on Mexico for essential imports, including automotive parts, electronics, and steel, and shifting production elsewhere would require significant time and financial investment. Approximately 70% of Mexico’s supply chains are unlikely to be relocated within 1-2 years, sustaining demand for Mexican exports despite tariffs.
Nearshoring in Mexico is expected to remain a long-term trend, as shifting entire supply chains is complex and time-intensive. Tariff measures are also unlikely to be permanent, according to BBVA, as they would lead to higher inflation in the United States and reduce its global competitiveness, given that Mexican imports help lower production costs for many U.S. exports. Additionally, Mexico’s proximity and established supply chains provide logistical advantages that are difficult to replicate. It remains more profitable to produce in Mexico and export to the U.S. than from other countries
