Tuesday, Feb. 11, 2025 | 2 a.m.
“We’re undoubtedly making the manufacturing facility in Mexico. We really feel excellent about that. We put lots of effort into taking a look at totally different places and we really feel excellent about that location. We’re going to construct a manufacturing facility there and it’s going to be nice.”
Oh, these nice days when Elon Musk had such rapport with Mexico that not solely was he planning a “gigafactory” in Monterrey, however he additionally bought a devoted crossing lane on the border to expedite auto elements for Tesla Inc. into Texas. It seems like ages in the past, however Musk made the feedback in October 2023, on the peak of the post-pandemic provide chain turmoil, when corporations have been desperately attempting to relocate out of China for geopolitical causes, and Mexico was seen as a chief different (bear in mind “nearshoring”?).
Quick ahead 15 months and Musk is now spending his time disrupting the U.S. authorities as a key adviser to President Donald Trump, the identical administration that has introduced 25% tariffs on all items imported from Mexico and Canada. Issues transfer quick in North America.
I do not know how this story will finish: The postponement of the tariffs for a month, as introduced by Mexican President Claudia Sheinbaum final week, is nice information and helps the view of some analysts and traders that Trump is simply bluffing to attempt to extract the very best deal out of regional companions.
There are nonetheless causes to consider that Trump is useless severe about these tariffs too. Trump’s second time period has already been a a lot larger irritant to allies than his comparatively restrained first mandate. Even when it’s only a negotiating tactic, naming Mexico’s authorities an ally of the narcos and calling for the annexation of Canada are provocations that may take lots of goodwill to restore. I worry the ambitions of this White Home transcend any eventual commerce settlement.
However whatever the destiny of those extraordinary measures, for Mexico the harm is already finished. This isn’t simply because tariffs, if lastly put in force, are prone to ship the Mexican financial system into recession this yr; steep surcharges on over $500 billion in exports will slam progress and jobs. Ought to tariffs stay, my Bloomberg Economics colleagues estimate that Mexico might lose as a lot as 70% of its exports to the U.S. within the medium time period.
The largest hit from Trump’s actions, although, will probably be to Mexico’s funding potential: If the free commerce settlement in North America — often called USMCA — is completely put into query by the U.S., there isn’t a level in establishing new factories south of the border to serve the American market.
Firms could be higher off constructing capabilities in Texas, Alabama or South Carolina than establishing provide chains in Mexico even when they will get cheaper prices within the Latin American nation. The concept Mexico’s integration to the U.S. financial system was unstoppable, rooted within the optimistic expertise of the previous three a long time, has been critically tainted.
That could be Trump’s finish recreation in spite of everything: The disaster might cross, however the specter of tariffs will cling just like the Sword of Damocles over any investments in Mexico and Canada for the rest of his administration or longer, giving persuasive arguments to firms to remain at dwelling. If the U.S. president can renege on a binding deal he signed with out Congress or the courts saying a phrase, you would possibly as effectively stick a fork within the concept of nearshoring. It’s finished.
Juan Pablo Spinetto is a Bloomberg Opinion columnist masking Latin American enterprise, financial affairs and politics.
