Mexican President condemns US tariffs, vows retaliation

Mexican President Claudia Sheinbaum strongly criticised US President Donald Trump's decision to impose a 25 per cent tariff on Mexican imports, calling it unjustified and harmful to both nations. Sheinbaum also pledged that Mexico would respond with countermeasures but did not immediately disclose specific plans.

The implementation of these sweeping tariffs marks a major shift in over three decades of economic cooperation between Mexico and the US, posing serious risks to Latin America’s second-largest economy. The two nations are each other's primary trade partners, with industries like automotive manufacturing relying heavily on cross-border supply chains established under their trilateral trade agreement with Canada.

"This decision lacks any logical basis and will ultimately hurt both our people and economies. No one benefits from this," Sheinbaum stated during her daily press briefing. She announced that further details on Mexico’s response, including potential retaliatory tariffs, would be revealed at a public event in Mexico City's Zocalo square on Sunday.

Sheinbaum also confirmed plans to speak directly with Trump later in the week, likely on Thursday.

Financial markets reacted quickly to the news, with Mexico’s peso losing approximately 1 per cent against the US dollar on Tuesday late evening (Indian time), while the country’s main stock index (.MXX) dropped by more than 1 per cent.

Sheinbaum warned that American businesses and consumers would bear the burden of higher prices, particularly in the automotive sector, which she identified as the most vulnerable.

Industry experts predict the tariffs could lead to billions of dollars in extra costs for car manufacturers that produce vehicles or components in Mexico. The Mexican government has previously highlighted that many pickup trucks sold in the US — a vehicle segment popular among Trump’s voter base — are assembled in Mexico.

After delaying the decision for a month, Trump announced on Monday that the tariffs would proceed, citing Mexico, Canada, and China’s alleged failure to curb the flow of the drug fentanyl and its precursor chemicals into the United States.

In response, Sheinbaum defended Mexico’s efforts, stating that significant actions had been taken during the 30-day grace period to reduce fentanyl trafficking. In recent weeks, Mexico has ramped up enforcement along its northern border by deploying thousands of soldiers to key areas and extraditing nearly 30 individuals accused of cartel-related crimes and other offenses.

US stocks under pressure as trade war escalates

Shares of major US companies have already taken a hit following Washington’s latest trade measures, with the newly imposed tariffs on Canada and Mexico expected to weigh heavily on earnings across multiple industries. Automakers, retailers, and raw material suppliers are among the hardest hit.

Trump's 25 per cent tariff on imports from Mexico and Canada covers over $900 billion in annual trade. In addition, he doubled tariffs on Chinese goods to 20 per cent, citing Beijing’s role in the US fentanyl crisis. These new duties add to the previous tariffs of up to 25 per cent implemented during his first term.

China retaliated by announcing fresh tariffs of 10-15 per cent on selected US goods starting 10 March, as Canada joined Mexico in preparing to strike back against their long-time trade partner. The uncertainty rattled Wall Street, with economically sensitive sectors like airlines and banks leading market declines. The S&P 500 saw its worst trading day of the year on Monday after confirmation of the tariffs.

Automotive industry faces heavy losses

The auto sector is expected to bear the brunt of the new tariffs. According to S&P Global, the additional duties on Mexican and Canadian imports could eat up 10-25 per cent of annual EBITDA for affected US carmakers. The 25 per cent tariffs on steel and aluminium will also increase costs, particularly for automakers that rely heavily on these materials.

J.P. Morgan analysts warn that the tariffs will have a direct impact on companies like General Motors and Ford, with some costs also trickling down to suppliers, dealerships, and consumers. The financial toll could be severe — GM is expected to lose around $14 billion, nearly all of its projected global earnings before interest and taxes for the year, while Ford could see a $6 billion hit, wiping out approximately 75 per cent of its global EBIT.

Ford operates three manufacturing plants in Mexico, exporting nearly 196,000 vehicles to North America in the first half of 2024 — 90 per cent of which were destined for the US, according to Mexico’s AMIA. Stellantis produces 39 per cent of its North American vehicles in Mexico and Canada, while GM and Ford manufacture 36 per cent and 18 per cent there, respectively, per a Barclays report from November.

GM's Canadian facilities play a crucial role in production, assembling electric vans, Chevrolet Silverado Heavy Duty trucks, and key components like V8 engines and dual-clutch transmissions. In response to the tariff news, Ford and GM stocks dropped 2.8 per cent and 5.8 per cent, respectively, on Tuesday.

Homebuilders face rising costs

The US housing industry is also bracing for increased expenses, as many raw materials are imported from Mexico and Canada. The PHLX Housing Index (.HGX), which has already fallen 4.8 per cent this year, dropped another 1.2 per cent on Tuesday.

Tariffs on finished products such as appliances, electronics, cabinets, and fixtures from Mexico and China could further drive up home construction costs, according to S&P Global. Rising commodity prices, labour shortages, and increased freight costs had already squeezed margins for building materials companies, and the new tariffs could intensify that pressure.

Aerospace industry at risk

Canada is a key player in the US aerospace supply chain, serving as the country’s top import partner and third-largest export destination for aerospace goods. The latest tariffs could significantly impact suppliers and aircraft manufacturers, including Boeing.

Boeing shares dropped 6.4 per cent as investors fretted about rising production costs. Canadian firms also manufacture critical components, such as engines for General Dynamics' Gulfstream and Textron aircraft, as well as landing gear for Boeing and Airbus. Meanwhile, Mexico’s rapidly growing aerospace hubs in Queretaro and Chihuahua attract major industry suppliers, including Honeywell.

Steel industry faces market volatility

Steel imports make up roughly 23 per cent of total US steel consumption, with Canada, Brazil, and Mexico as the largest suppliers. Canada’s hydropower resources make it a leading producer of aluminium, accounting for nearly 80 per cent of US primary aluminium imports in 2024.

Alcoa, a major aluminium producer, recently warned that Trump's tariff policies could cost 100,000 US jobs and would not be enough to incentivize domestic production. The company’s stock fell 3.1 per cent.

The broader steel sector also suffered losses, with shares of US Steel, Nucor, Steel Dynamics, and Cleveland-Cliffs dropping between 5 and 8 per cent.

Airline stocks plunge amid economic concerns

Fears of an economic slowdown weighed heavily on airline stocks, with the S&P Composite 1500 Passenger Index tumbling 6 per cent, marking its worst performance in over a year.

“As businesses and retailers warn customers about rising prices due to tariffs, there’s concern that consumers will cut back on discretionary spending, including travel,” said Michael Ashley Schulman, chief investment officer at Running Point Capital, as quoted by Reuters.

In addition to declining leisure travel, Schulman noted that businesses might also reduce corporate travel expenses in an effort to control costs and preserve margins.