The price of the goods in Arizonans’ fridges — like tomatoes, grapes and cucumbers — could go up if President-elect Donald Trump puts a 25% tariff on imports from Mexico on his first day in office, as he threatened to do on social media.
So could the price of electronic components, aircraft and car parts. Some of those parts cross the border multiple times before a finished pickup truck ends up at a Phoenix dealership, for example. In a place like Arizona, where the economy is inextricably linked to Mexico, tariffs could have an outsized impact, said University of Arizona economist George Hammond.
“Mexico is by far Arizona’s most important trading partner,” Hammond said.
Trump said on social media late last month that he would put a 25% tariff on all goods coming from Mexico and Canada, unless the two border countries stopped the flow of migrants and drugs into the U.S. Now, negotiations seem well underway between the three countries, who have depended on a free trade agreement since the 1990s, to keep their trade relationships intact in a moment of political and economic uncertainty.
Tariffs came up a lot in Trump’s campaign, and he put tariffs in place during his last administration. Those tariffs targeted specific industries, like steel and aluminum, and President Joe Biden largely kept them in place when he took office. What’s different this time is that Trump is threatening tariffs on all goods that cross the border, said Inu Manak, a fellow for trade policy at the Council on Foreign Relations.
“I would say what President Trump has proposed is unlike anything we’ve seen before,” Manak said.
A 25% across-the-board tariff on goods from Canada and Mexico on his first day in office wouldn’t just impact Mexican companies. Many of the companies that ship goods from Mexico to the U.S. are American.
For example, the Ford plant in Hermosillo makes trucks and SUVs — many of which cross the border are sold at dealerships in the U.S. Mexico’s Economy Secretary Marcelo Ebrard estimates that 88% of pickup trucks in the U.S. are made in Mexico. He says if Trump’s tariff were to go into effect, their price in the U.S. would rise. Ebrard called Trump’s tariff proposal “a shot in the foot” for the U.S.
Hammond said about a third of all imports into Arizona are from Mexico, which means that if the price of those goods were to go up significantly, Arizonans would feel the pain, especially in the first few years.
“We’ve just been through a major inflationary episode … why we would create a situation where we would extend our period of elevated inflation is not at all clear to me,” Hammond said.
That pressure on consumers could get more dramatic if Mexico imposes its own retaliatory tariffs, which Mexican President Claudia Sheinbaum has suggested she might do if Trump’s tariffs go into effect.
Trump’s tariffs would also interrupt the free trade relationship Mexico, Canada and the U.S. have had since the 1990s.
“Raising tariffs against Canada and Mexico would be in complete violation of the U.S. Canada Mexico agreement,” Manak said.
The U.S., Canada, Mexico agreement, or USMCA, is the trade pact Trump’s own administration negotiated in 2018 to replace the former trade agreement between the three countries, NAFTA. Trump has said he wants to renegotiate his own deal in 2026, when it’s up for review.
Mexico could find itself in a difficult position at the USMCA negotiating table. Some Canadian officials have suggested that there’s too much investment from China in Mexico, and that they would consider cutting Mexico out of the agreement altogether.
While Chinese investment in Mexico has grown over the past 15 years, it’s still a small slice of the total international investment in the country, said Enrique Dussel Peters, an economist who studies China at the Universidad Nacional Autónoma de México in Mexico City. But China has been looking to get more involved, including with its electric vehicle manufacturing company BYD, which has been eyeing more development in Mexico. Sheinbaum has downplayed that relationship and says her focus is on Mexico’s trade partnership with the U.S. and Europe.
But experts say it’s impossible to know at this point if Trump really would put tariffs in place on his first day in office.
“So this increases the overall uncertainty for firms established in Mexico that export to the U.S.,” Dussel Peters said.
That uncertainty is on the minds of the wealthy Mexicans economist Delia Paredes advises on their investment portfolios at the firm TransEconomics. She said the Mexican entrepreneurs she works with are thinking about how this could affect markets, along with the sweeping constitutional reform Sheinbaum is in the process of putting in place in Mexico.
“They are finding ways to adapt and get over this hurdle,” Paredes said.
Uncertainty on both fronts could also dissuade foreign investors looking to build or manufacture in Mexico. Chief Economist for Latin America at Citigroup Ernesto Revilla said while he doesn't think Trump’s tariff threat will actually go into effect, if it did it could be devastating for Mexico economically.
“Of course a tariff of 25% from the largest market in the world will cause a slowdown in the Mexican economy, if not recession,” Revilla said. “This is extremely concerning for all parties involved.”
But Revilla said Mexico will most likely be able to avoid that scenario. Trump said on social media that his tariffs go into effect on his first day in office, unless Mexico and Canada stop the flow of drugs and migrants into the U.S.
“I still think that there is big space for negotiation, that Mexico can satisfy some of the demands of President-elect Trump,” Revilla said.
Most experts agree it would be nearly impossible for Mexico to completely shut down all unauthorized migration and drug trafficking across the border with the U.S. before Inauguration Day, as Trump is asking. But there does seem to be headway on his demands. Trump and Sheinbaum both said they had a productive phone call late last month.
Just a few days later, Mexico's security forces announced they had made the largest fentanyl seizure in the country’s history.
Retired U.S. State Department diplomat and trade negotiator James Carouso, who now sits on the board of the Tucson Committee on Foreign Relations, said the past few weeks could be a sign that Trump will continue to use tariffs as a negotiating tool during his presidency.
“The fact that he’s using his first tariff effort on non-trade and economic issues, is to me indicative of where his mind is, which is … use tariffs as a tool to get what they want on whatever the issue is they want,” Carouso said.
