Historical Background and Comparison with Previous Tariffs
The 25% tariffs proposed by Donald Trump in 2025 have few recent precedents in terms of magnitude and scope. To gauge their potential impact, it is useful to compare them with previous tariff policies:
Historical Tariff Laws: One extreme case was the Smoot-Hawley Tariff Act (1930) in the U.S., which sharply raised tariffs on thousands of products. The international reaction was swift: dozens of countries responded with their own tariffs, and global trade contracted by approximately 65% in the following years, exacerbating the Great Depression.
Sectoral Tariffs (Steel 2002): In 2002, President George W. Bush imposed tariffs of up to 30% on imported steel to protect the national industry. The result was counterproductive: the increase in steel costs led to the loss of nearly 200,000 jobs in steel-consuming industries—more than the total employment in the steel industry itself. Many auto parts manufacturers relocated production outside the U.S. to avoid the extra costs, and under threats of retaliation and WTO rulings, Bush repealed the tariffs in 2003. This episode demonstrated that tariffs can save some jobs in the protected sector but at the cost of losing more jobs downstream due to higher input costs.
Trade War 2018-2019: During his first term, Trump launched a trade war by imposing tariffs on China (25% on hundreds of products) and on allies (25% on steel and 10% on aluminum in 2018). That round of tariffs, though broad (affecting imports worth $380 billion), had moderate macroeconomic effects in the U.S.: inflation remained under 2%, and economic growth stayed robust in 2018-2019. However, the cost fell on U.S. consumers and businesses. Tariff revenue doubled (equivalent to a hidden consumer tax), and manufacturing weakened. Later studies estimate that those tariffs reduced U.S. GDP by ~0.2% in the long run, increased prices on imported goods, and raised annual costs for the average U.S. household by around $1,200. Additionally, other countries retaliated: for example, China halted agricultural imports (hurting U.S. soybean farmers), and Mexico imposed tariffs on U.S. products (cheese, pork, apples, whiskey) in response to steel tariffs.
Tariff Threats Against Mexico (2019): Since his 2016 campaign, Trump had threatened general tariffs on Mexico (even up to 30%), but he did not implement them during his first term. In June 2019, he threatened an initial 5% tariff on all Mexican imports, escalating up to 25% to pressure Mexico on immigration issues. Mexico reinforced migration controls, and the agreement prevented the tariffs from taking effect. In return, the USMCA trade agreement (formerly NAFTA) was renegotiated with stricter rules of origin, demonstrating that Trump's tariff threats secured concessions without actual implementation.
In summary, history shows that broad tariffs often have adverse economic effects on both sides: they increase costs of inputs and final products, reduce trade, and can result in net job losses. Trump's 2025 25% tariffs are comparable in scope to Smoot-Hawley (as they tax virtually all Mexican imports), but they are driven more by political (immigration, security) than economic motives. The following sections detail the expected impact on Mexico's and the U.S. economies, based on recent data and projections, compared to these historical trends.
Impact on GDP in Mexico and the U.S.
Mexico:
As Mexico is highly dependent on the U.S. market, tariffs would have a significant impact on its growth. Initial financial sector estimates project that a 25% general tariff could push Mexico into recession in 2025.
BBVA Research calculates that with tariffs, Mexico's GDP in 2025 would shift from +1.0% (baseline scenario) to -1.5%.
Moody’s Analytics predicts a drop of 0.5% to 1.0% in GDP in 2025, moving from +1.2% in 2024 to approximately -0.8% in 2025.
The Peterson Institute (PIIE) estimates that the Mexican economy would be 2% smaller than projected at the peak of the tariff impact.
These declines would result in billions of dollars in lost economic activity. Furthermore, the uncertainty surrounding prolonged tariffs is already hindering investment—the mere threat of tariffs discourages new business projects in Mexico, doubling the negative effect seen in 2019 during NAFTA renegotiations. Analysts warn that a permanent tariff would render the USMCA unsustainable, with BBVA stating: "We cannot talk about free trade when a 25% tariff is imposed."
In an extreme scenario where tariffs persist for the entire year, some economists project up to a -4% contraction in Mexico's GDP, which would signify a severe recession.
United States:
The U.S. economy, far less dependent on Mexican imports, would suffer a proportionally smaller impact on GDP, though still noteworthy.
The Tax Foundation estimates that 25% tariffs on Mexico (and Canada) could reduce U.S. GDP in the long run by around 0.2%, equivalent to a loss of $50 billion in annual production (for a $25 trillion GDP).
Other estimates place the GDP decline at ~0.3%, factoring in potential foreign retaliations.
**PIIE projects that if these tariffs remain throughout a second Trump term, U.S. GDP would be $200 billion smaller than it would be without the tariffs.
In context, the U.S. would likely avoid recession but face slower growth. It is worth noting that exports to Mexico constitute only ~1% of U.S. GDP, meaning that direct trade exposure has limits in terms of macroeconomic damage. However, certain U.S. states and industries highly integrated with Mexico (automotive, agriculture, electronics) would experience significant disruptions, affecting regional GDP and employment in those areas.
Summary: Mexico would experience a far greater GDP decline than the U.S. under these tariffs—by multiple percentage points—due to its high exposure (≈30% of its GDP depends on exports to the U.S.). The U.S., with a more diversified economy, would see a smaller national impact (a few tenths of GDP), but concentrated losses in key sectors.
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