On April 2, President Donald Trump imposed a round of reciprocal tariffs on as many as 185 countries, a decision that is set to reshape global trade for months, if not years, to come. Branded as “Liberation Day” and part of Trump’s “America First” foreign policy, the tariffs were enacted via executive order and range from 10% to 50%.
Worth noting are the new tariffs levied on China (34%), Taiwan (32%), Japan (24%) and the EU (20%). The baseline 10% tariff was applied to many Latin American and Caribbean countries, with higher levies for Guyana (38%), Nicaragua (18%), and Venezuela (15%).
Mexico and Canada were excluded from yesterday’s announcements, but are still subject to tariffs on most imports to the U.S., with the new 25% tariff on U.S. auto imports set to affect North American supply chains.
AQ asked analysts to share their reactions and perspectives.
Sergio Luna
Luna is an economist from UNAM with an M.Sc and Ph.D. in economics from the University of London. He’s Grupo Financiero Mifel’s chief economist.
There’s a big sigh of relief south of the border. With “reciprocal tariffs” meaning a hefty 34% for China, 20% for the EU, and a 10% baseline tariff, keeping Mexico and Canada at “just” 25% tariffs on import content not covered by the USMCA has everyone in Mexico talking about the benefits of trade diversion (although no one uses that word). The foreign exchange market seems to concur, as it ended “Liberation Day” with the Mexican peso as the third-best performer vs. the U.S. dollar.
My back of the envelope calculation is that the weighted tariff for motor vehicles crossing from Mexico to the U.S. will rise from 0.6% to 6%. Agro-industrial exports (already more prominent than oil & mining exports at 9.4% of the total) should be little affected since, apparently, we go back to the definition of regional – rather than U.S. – content rules for USMCA qualification. In the case of electronic goods, calculations are more complicated but since only about 37% of their export value is local content, the tariff increase should be higher. Still, it should compare favorably with that applied to ASEAN countries, for instance.
However, by comparing Mexico to other countries after “Liberation Day” we seem to forget that Mexico is worse off vis-à-vis our initial position. Moreover, we also ignore that the U.S.’s unilateral imposition of tariffs on Mexico and Canada goes against USMCA rules. As far as I know, no Mexican official has discussed the possibility of filing a complaint under USMCA conflict resolution mechanisms. De facto, a regional rule-based system has been substituted with transactional, unilateral decision-making. If USMCA is dead, can we at least have a proper eulogy?
Sometimes, the forest matters as much as the tree. Mexico is a very open economy (its trade-to-GDP ratio is 73%), heavily reliant on global value chains that are geared to the U.S., the destination of 80% of Mexican exports. Irrespective of our relative position in terms of tariffs, any measure that affects the trade system’s current operation, as well as the health of the U.S. economy, will have an impact on Mexico. In that regard, the indirect effects of tariffs on U.S. activity and inflation imply an additional challenge for Mexico’s macroeconomic prospects.
Antonio Ortiz-Mena
CEO of AOM Advisors, Adjunct Professor of International Economic Relations at Georgetown University’s Walsh School of Foreign Service and Chair of the Mexican Foreign Trade Council (COMCE)‘s USMCA Committee.
The U.S. has implemented tariffs on a wide range of imports from its trade partners, with some exceptions for goods that comply with the USMCA agreement. These tariffs aim to strengthen the U.S.’s position in the global economy, protect American workers, and promote domestic production of certain goods. Additionally, the tariffs are intended to reduce the U.S. trade deficit and generate revenue that could help offset the expected loss in tax revenue due to anticipated domestic tax cuts. Given the complexity and scale of these measures, it will take months—or even years—before their full impact becomes clear. However, several potential outcomes can be anticipated.
One possibility is that the U.S.’s trade partners will respond by reducing some tariffs and non-tariff barriers that currently restrict U.S. exports. In turn, the U.S. may then reduce its own tariffs, leading to more open and reciprocal trade. While this scenario remains plausible, another potential outcome is that some countries might challenge the legitimacy of unilateral tariff increases, either at the World Trade Organization (WTO) or through regional trade agreements. In response, these countries might impose higher tariffs on U.S. exports, especially impacting the U.S. agricultural and services sectors. Such retaliatory measures could undermine the U.S.’s goal of reducing its trade deficit.
Another concern arises if the U.S. intends to rely on significant tariff revenues to support its domestic economic policies. It remains unclear how this would be achievable if the U.S. simultaneously seeks to encourage import substitution—producing goods domestically that it had previously imported.
For many countries in the Americas, particularly those with China as their primary trade partner, there could be a growing push to diversify trade relationships away from the U.S. While the USMCA remains largely unaffected for Mexico and Canada, uncertainty looms, particularly in the automobile sector, where supply chains could face disruptions.
The tariff increases implemented on April 2 represent the largest since the 1930 Smoot-Hawley Tariff Act, which is often cited as exacerbating the economic downturn following the 1929 stock market crash. Since the establishment of the General Agreement on Tariffs and Trade (GATT) in 1947, countries have generally sought to avoid imposing large unilateral tariff increases, as such actions tend to provoke retaliatory measures that can harm all parties involved. While it is hoped that the U.S.’s envisioned scenario will unfold, the risk of escalation—something GATT was designed to prevent—remains a very real concern.
Luíza Pinese
Pinese is an economist focused on balance of payments analysis for the macroeconomics team at XP Investimentos in São Paulo.
President Trump’s tariff decision was based on the overall trade deficits the United States runs with each trading partner, rather than the effective tariff imposed on specific products. Given that Brazil maintains a roughly balanced trade position with the U.S., it was assigned just the baseline 10% additional tariff. That was a better-than-expected outcome. The market reaction in Brazil has been quite positive, reflecting a sense of relief and that Brazil could be a relative “winner” in the global trade war (more below). That said, Brazilian exports to the United States are expected to decline in absolute terms, as some products may be replaced by U.S.-made alternatives.
From a macroeconomic perspective, the direct effect is likely to be limited. Exports account for some 18% of Brazil’s GDP, and sales to the U.S. represent about 12% of total exports—thus, 2.2% of GDP. However, on the microeconomic level, the consequences may be more significant, especially in sectors where the U.S. is a dominant buyer, such as iron and steel, aircraft, and ethanol.
In our initial assessment, Brazil may even benefit indirectly from a broader trade war scenario (since countries may retaliate against the U.S. measure). Being subject only to the minimum additional tariff rate reduces the risk of trade diversion away from Brazilian products. China and the European Union face considerably higher tariffs, which could, over time, open space for Brazilian exporters to gain market share. Globally, however, the impact may prove more pronounced than initially anticipated. Brazil is not immune to these broader dynamics: changes in economic activity in the U.S., China, and the European Union could reverberate through global markets, affecting commodity prices and investor sentiment.
China and the European Union have vowed retaliation. The same could happen in Brazil. Officials expressed regret over the decision and affirmed their intention to work with the private sector to defend the interests of domestic producers. The Congress has already approved a bill known as the “Economic Reciprocity Law,” which authorizes Brazil’s Foreign Trade Chamber to adopt the use of retaliatory tariffs and non-tariff barriers. At the same time, the government has expressed a willingness to deepen dialogue with the U.S. in hopes of reversing or softening the announced measures.
Back in 2018, although Trump imposed 25% tariffs on steel and 10% on aluminum, Brazil was able to negotiate an exemption and was included in a quota-based system.
To read this article as it was posted by Americas Quarterly, click here.