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Half of all Mexican exports to the US last year did not arrive under North America’s free trade deal and therefore still face an immediate risk of 25 per cent tariffs imposed by President Donald Trump, according to US government data and trade experts.
Most of those goods could meet USMCA trade deal terms by filing extra paperwork, but about 10 per cent of Mexico’s exports to the US — worth about $50bn — will struggle to comply, leaving companies with a dilemma: scramble to switch their supply chains, or wait and see if the tariffs stick.
Trump agreed this month after two days of market turmoil to exempt goods sold under the USMCA from the tariffs he says are needed to restore fairness to the US’s trading relationship with Mexico and Canada.
But a chunk of those likely do not meet rules for minimum levels of North American content, according to Mexico’s economy ministry, casting a pall over the economy of America’s largest trading partner. Under Trump’s current plans, those products will face bigger fees than goods from China, his trade nemesis, which are only subject to a 20 per cent tariff.
“Losing the market in the US is not an option for Mexican manufacturers,” said Andrés Díaz Bedolla, chief executive of Yumari, a manufacturing platform that exports to the US. “What people are doing right now is adjusting their supply chain in order to meet the rules of origin that are required — even if it’s more expensive.”
Sellers of about half of the $505.9bn of goods exported to the US last year did not go through the sometimes costly process of complying with USMCA requirements to prove what proportion of components originated in North America.
However, about 40 per cent, worth roughly $200bn, went through duty-free anyway, because the US imposed no tariffs on goods such as medical devices, beer and tequila — meaning there was no incentive to complete the extra paperwork.
The remaining 10 per cent did face tariffs, but they were mostly fairly low before Trump’s move to increase them.
This bucket included goods such as cars, auto parts and electronics that may not comply with USMCA requirements, but also some oil, which had such low tariffs that companies chose to pay the duty instead of dealing with compliance costs, according to Trade Partnership Worldwide, a consulting firm.
The new 25 per cent tariff has changed the calculation, pushing businesses to figure out if their goods already are, or can become, compliant.
Meeting USMCA regulations is straightforward for many products — Mexico’s economy minister, estimated that 85-90 per cent of exports should meet the rules by April 2.
“We’re talking about one or two days,” said Javier Zarazua, a partner at JL Nearshoring Mexico. “It’s a quick process.”
However, the remainder is more complicated.
The rules are particularly strict for the politically sensitive automobile sector. The Mexican Automotive Industry Association has said 8.2 per cent of cars exported to the US do not comply. For car parts, the figure is 20.4 per cent.
For electronics, more than 50 per cent of components generally have to be from North America.
“I suspect many electronics will be less likely to qualify,” said Jason Miller, a professor of supply chain management at Michigan State University. “A lot of the components are likely coming from Asia.”
Businesses are being forced to make these existential decisions with no certainty about which of the boomeranging policies Trump has proposed will stick.
That uncertainty is its own burden, said Díaz Bedolla.
“Everything comes to a halt, no one takes decisions,” he added. “If you’re going to impose tariffs, just do it already.”
