Mexico Races Against the Clock as U.S. Tariff Deadline Looms
With the threat of tariffs hanging over Mexico, Marcelo Ebrard has stayed on damage control duty, recently flying to Washington to negotiate with U.S. officials in a last-ditch effort to prevent the tariffs (25% related to fentanyl/immigration and/or a different but still meaningful tariff level related to “Liberation Day” reciprocal tariffs to address US trade imbalances) set to be enacted on April 2. This marks the fourth round of talks between the two governments, with Mexico scrambling to protect its trade interests as the clock ticks down.
Ebrard, speaking virtually at the presidential morning conference before his departure, laid out his agenda: meetings with U.S. Commerce Secretary Howard Lutnick and USTR Chief Jamieson Greer. The stakes couldn’t be higher—Mexican exports to the U.S. totaled $490 billion in 2023, equivalent to nearly 30% of nominal GDP in gross terms (though the net contribution to GDP is far lower, given the heavy reliance of exports on imported inputs). A trade war could push Mexico into a recession, with Fitch already slashing its 2025 growth forecast to 0% and the OECD predicting a 1.3% contraction should tariffs materialize.
Mexico in effect faces two separate tariff threats (although politically speaking highly related). The 25% sweeping tariff – now delayed twice – imposed originally allegedly due to Mexico’s failure to deter fentanyl trafficking and immigration. This looks more likely than not to be suspended again given the positive news on both fentanyl and immigration counts. And a yet undetermined tariff related to the April 2nd “Liberation Day” Trump reciprocal tariffs, aimed at addressing tariff and non-tariff barriers on US exports.
President Sheinbaum has argued that Mexico should not be affected by “Liberation Day” tariffs as it has free trade with the US under USMCA. However, the US administration argues that 1) Mexico charges 16% VAT on US (and other) exports sold into Mexico, while Mexican exports into the US are VAT free (but do pay a lower state by state sales tax on the end-sale). In fact, Mexican exporters face zero VAT, rather than exempt VAT, so exporters can recover VAT paid on local inputs. As US and other exporters to Mexico generally do not have Mexican inputs, they cannot recover any VAT. 2) Mexico has a huge trade surplus with the USA of about $150bn in 2023. To address this trade imbalance and the alleged VAT subsidy, the US argues Mexico (and other similar VAT-charging) countries should face tariffs.
This raises an interesting, albeit perhaps academic point. If Mexico were to charge some VAT or equivalent tax on its exports to the US, could it thus avoid US tariffs, under “Liberation Day” reciprocal arguments? With Mexican exports to the US around $500bn/year, a 10% average export tax to the US would raise USD50bn, or about 3% of GDP, nicely solving Mexico’s fiscal deficit at the same time. Surely it would be better for Mexico to raise tax revenues on its exports to the US, than for the US to do so and keep the money? In the real world, this is unlikely to happen, as Mexican exporters would be incandescent with rage, and the US may go ahead and charge tariffs on Mexican exports anyway, but it is at least a logical argument.
Teachers Win the Battle, but the Pension War Isn’t Over
Mexico’s teachers scored a significant political victory after President Sheinbaum withdrew the controversial reform to the ISSSTE law. The decision, announced by Morena’s congressional coordinator Ricardo Monreal, was framed as a step to facilitate dialogue with the teachers’ unions, particularly the powerful CNTE. The timing was crucial, just one day before the CNTE was set to begin a 72-hour national strike.
The CNTE has long been vocal about its opposition to pension reforms, arguing that past changes, particularly those implemented in 2007, have eroded their benefits by increasing required worker contributions and by the privatization of pension management through the Afores. It’s therefore little surprising that, despite this recent concession, which also included new housing benefits for teachers, CNTE leaders have stated that their fight is far from over, as they continue to push for a full repeal of the 2007 reform. A return to the previous pension system would guarantee retirement after 28 years of service for women and 30 years for men. It would also bankrupt the system.
Analysts have said that what the massive protests staged by the CNTE last Thursday were more than just another day of hectic traffic: they were an open challenge to the President, a calculated move not just to test the President but to break her and assert their dominance. For now, the union has kept its planned strike for March 19-21, warning of further protests if their demands are unmet. How Sheinbaum responds will likely set the tone for her presidency—either she asserts control, or she spends the next six years negotiating with a mob that smells blood in the water and potentially risking fiscal disaster by upending the 2007 pension reform.
Mexico’s Supreme Court Upholds Bank Fines
The Supreme Court’s ruling against several banks set a significant precedent for financial regulation in Mexico. By upholding a 35 million peso fine imposed by Cofece for collusion in the government bond market, the decision reinforces the legal framework meant to ensure fair competition, which is undoubtedly much more significant than the small fine itself.
Between 2010 and 2013, these banks and their traders were found to have coordinated actions that influenced bond prices, impacting investors, pension funds, and the broader market. Given the complexities of enforcing financial regulations, bringing this case to a final ruling was no small task.
The banks argued that the chats used as evidence infringed on privacy rights, but the court determined that the information had been voluntarily provided by another market participant seeking leniency. This type of cooperation is often a key element in antitrust cases, underscoring the relevance of this decision for future cases. Still, it remains to be seen whether this case signals a stronger regulatory environment in Mexico or it was more of a one-off.
Congress Approves Digital Reform: A Step Toward Efficiency or More Bureaucracy Online?
Mexico’s Congress has approved a constitutional reform to simplify administrative processes and advance digitalization. After gaining unanimous support in Congress, lawmakers have sent the measure to state legislatures for final approval. The reform seeks to reduce bureaucratic inefficiencies, improve government transparency, and make public services more accessible through digital platforms.
The initiative grants Congress the authority to create a national framework for digital governance, with a 90-day deadline to pass the necessary secondary legislation. In theory, this should lead to faster processes, fewer in-person procedures, and less red tape for citizens and businesses. However, the success of such an effort will depend on effective implementation, adequate infrastructure, and the willingness of government agencies to adapt.
While the reform has been widely supported, its actual impact remains to be seen. Digital transformation in Mexico has often been slow and uneven, with past efforts facing logistical and technical challenges. Ensuring this initiative translates into tangible improvements for citizens will require sustained political commitment and oversight.
Contact:
Laura Camacho
Executive Director Miranda Public Affairs
laura.camacho@miranda-partners.com
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