US Mexico Trade War Escalates: 25 Percent Tariffs Reshape Bilateral Economic Landscape as Tensions Rise Over Fentanyl and Water Disputes
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US Mexico Trade War Escalates: 25 Percent Tariffs Reshape Bilateral Economic Landscape as Tensions Rise Over Fentanyl and Water Disputes
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This year has been marked by a dramatic escalation in trade tensions between the US and Mexico under President Trump. On March 4th, the Trump administration imposed a 25 percent tariff on most goods from Mexico, citing fentanyl trafficking as the trigger for these measures, according to the Wall Street Journal and summary accounts by Wikipedia. While initially applied broadly, these tariffs saw partial exemptions for USMCA-compliant goods and automakers after high-level negotiations. Still, the tariffs have hit steel, aluminum, automobiles, and many other products from Mexico, leading to economic ripples on both sides of the border.
According to the Trade Compliance Resource Hub, as of today, the general tariff rate on Mexican exports to the US is 25 percent for most goods outside of those meeting USMCA criteria. Tariffs on certain vehicles, auto parts, and metals remain especially high, with aluminum and steel products now facing rates of up to 50 percent. The current tariff landscape is fluid, with President Trump threatening to increase these rates to 30 percent on certain goods as soon as August 1st, though no legal documentation implementing this has yet been released.
MarketWatch recently reported that the US’s average effective tariff rate across all trading partners sits at 16 percent and is expected to reach 20 percent by year end, a massive jump from just over 2 percent in 2024. This is having significant impacts on global supply chains, with many US companies sourcing more goods from countries with lower tariffs—Mexico chief among them.
Yet, despite these tariffs, Mexico’s exports to the US are booming, reaching a record US $45.4 billion in July. El Financiero found that 86 percent of those exports were still entering the US tariff-free under the USMCA, illustrating the significance of compliance efforts. Fitch Ratings notes 77 percent of Mexican imports to the US were compliant with USMCA rules as of June 2025—a sharp increase from earlier in the year.
The political dimension is heating up as well. President Trump has now threatened further tariffs against Mexico over a dispute about Rio Grande water deliveries, claiming that Mexico has not fulfilled its treaty obligations for Texas farmers. Mexican President Claudia Sheinbaum has responded by blaming a historic drought and proposing further negotiations.
In response to these US tariffs, President Sheinbaum said this week that Mexico is planning its own tariff hikes on imports from countries without a trade agreement, such as China. This is part of what’s being called Plan Mexico, an effort to boost domestic industry in the face of US protectionism, with further details expected in Mexico’s 2026 budget proposal.
Listeners, these recent moves show that US-Mexico tariff negotiations—and their economic consequences—are far from over. Mexico remains the top exporter to the United States, and any changes in tariffs will have a broad impact on both economies.
Thank you for tuning in to Mexico Tariff News and Tracker. Be sure to subscribe for future updates.
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