Can Mexico Afford to Retaliate Against the U.S.?

Wed, 05 Mar 2025 19:46:39 GMT

President Donald Trump followed through on his threats of imposing a 25% tariff on most imports from Canada and Mexico, along with an additional 10% on goods from China. While China and Canada released their list of retaliatory tariffs the same day, Mexico’s president, Claudia Sheinbaum, says they won’t release their list until the weekend.

Sheinbaum said the country will also respond with a 25% tariff on U.S. goods but will announce the products it will target on Sunday.

But can Mexico afford to retaliate? That was one of the questions asked by USDA chief economist Seth Meyer during Commodity Classic this week. The reason is Mexico’s economy is struggling, due to a number of factors, which includes a large informal sector, high budget deficit and unstable infrastructure.

According to the Federal Reserve Bank of Dallas, Mexico’s GDP grew only 0.9% year over year in fourth quarter 2024, after expanding 2.% in 2023 and 4.6% in 2022. Economic growth slowed, mainly due to lower investment, slowing consumption and a contracting energy sector.

(Federal Reserve Bank of Dallas)

The Dallas Fed says lower investment and consumption was the main driver behind the slow growth.

“Investment contributed three percentage points less to GDP growth in 2024 compared with 2023,” the Federal Reserve Bank of Dallas said in a recent report. “The major drop was in nonresidential construction investment, while purchases of imported machinery and equipment also slowed noticeably as the Mexican peso continued to weaken against the dollar. In addition, consumption was impacted by sluggish growth in remittances, high interest rates and flat employment. However, net exports boosted growth in 2024 after dragging it down the previous two years.”

Extremely Reliant Upon Exports
The other issue? Mexico is extremely reliant upon demand from the U.S., exporting $41.9 billion worth of agricultural products to the U.S.

In 2023, Mexico accounted for 16.3% of U.S. agricultural exports and 23.3% of U.S. agricultural imports.

By the numbers:

Mexico is the largest source of horticultural imports to the U.S., supplying 63% of vegetables and 47% of fruit and nuts in 2023.
The top agricultural exports from Mexico to the U.S. in 2024 included beer, tomatoes, tequila, avocados, strawberries, raspberries and peppers.

Mexico is the Biggest Customer of U.S. Ag Exports

The other important piece is Mexico is now the U.S.'s top ag export destination.

According to Krista Swanson, chief economist for National Corn Growers Association (NCGA), Mexico is a huge destination for U.S. corn. More than 40% of U.S. corn exported last year went to Mexico. Not only does that mean the U.S. relies on Mexico, but Mexico is also reliant upon the U.S. do to the strong demand.

“That’s the other key piece here when we think about a Mexico situation, you know, will they retaliate on corn because it’s so important to the consumers in their country,” Swanson told Farm Journal during Commodity Classic this week. “And it’s such a big part of their diets and consumption. It’s a commodity that they consume way more of than what they produce. So they’re going to have to get it from somewhere.”

Bigger Picture
According to USDA’s Economic Research Service , between 1993 (the year before NAFTA’s implementation) and 2023, U.S. agricultural exports to Mexico expanded at a compound annual growth rate (CAGR) of 7%, while agricultural imports from Mexico grew at a rate of 9.7%.

“With the economic recovery in the United States and Mexico that followed the pandemic, U.S. agricultural exports to Mexico increased at a CAGR of 15.7% between 2020 and 2023, and U.S. agricultural imports from Mexico grew at a CAGR of 11.3%,” the USDA report said. “In 2023, however, U.S. agricultural exports to Mexico decreased by 0.3% compared with the previous year, as the prices of major agricultural exports (such as corn and soybeans) declined.”

USDA Prepares to Protect Farmers in a Trade War

Wed, 05 Mar 2025 19:24:04 GMT

As the clock struck midnight on March 4, President Donald Trump’s new tariffs on imports from Canada, Mexico and China went into effect. Almost immediately, global markets started to react, and trading partners retaliated.

While the full economic consequences of the trade war remain to be seen, Secretary of Agriculture Brooke Rollins has promised to have a plan, such as the Market Facilitation Program (MFP), ready for farmers, if needed. In 2019, MFP provided direct payments to producers impacted by retaliatory tariffs, resulting in the loss of traditional exports.

“Everything is on the table right now. Everything. I know that President Trump, whom I speak with regularly, realizes the state of the farm economy in this country,” Rollins said on Sunday at Commodity Classic . “The last time, I know, he pushed Secretary Perdue to ensure we were able to make whole–as best as we could–some of those, and hopefully most of those, if not all, who had been hurt. We’re building the team at USDA to ensure we have the structure and the plan in place to allow us to move very quickly.”

In an interview with Farm Journal at Commodity Classic, USDA Economist Seth Meyer says he has been instructed by Secretary Rollins to be ready for a relief program, and he’s started calculating what possible relief could look like.

“Calculating something right today would not be helpful because we don’t know where we’re going to be, but absolutely, the Secretary instructs: ‘You need to be ready, have your pencil sharpened and have your tools available. Think about how you would proceed,’” Meyer says. “We are ready in that backstop. It won’t be easy. We’ve talked a lot about different countries. We’ve talked about reciprocal trade, but we are indeed sharpening our pencils to be able to do what she’s asked us to do.”

Here are the key details of the U.S. tariffs and retaliation from Canada, Mexico and China.

(Farm Journal)

Canada responded swiftly with plans to impose 25% tariffs on nearly $100 billion of U.S. imports over two tranches. Mexican President Claudia Sheinbaum plans to announce retaliatory tariff and non-tariff measures against the U.S. at an upcoming rally in Mexico City’s central square.

Meyer’s question is, “Can Mexico afford to retaliate?”

(Farm Journal)

As President Trump’s tariffs drew swift retaliation from trading partners, the ag industry was quick to react.

Impact on Farm Machinery
Equipment makers are concerned about the additional duties, especially after a rough year for the industry.

“We have spent decades laying down supply chains across the world. Our industry is global — 30% of all equipment made in the U.S. is destined for export. Canada is our largest market outside of the U.S.,” says Johan “Kip” Eideberg, senior vice president – government and industry relations, Association of Equipment Manufacturers (AEM). “If we want to create more jobs here in America, we need to sell more equipment and that means selling to customers outside of the U.S.”

As detailed in From the Factory to Your Fields: Where Farm Equipment Is Made , the ag equipment manufacturing industry is fully integrated across the three North American allies involved in the so-called “trade wars.”

“Anytime you disrupt those tightly connected supply chains — and tariffs would be a direct disruption — it’s going to have a serious impact on equipment manufacturers and on our farmers,” Eineberg says. “Given that Canada is our largest export market, we’re sending almost $10 billion worth of goods to Canada every year, there’s a lot at stake here.”

In 2018, Eineberg estimates, tariffs on steel, aluminum and farm inputs from China drove up the cost of making equipment in the U.S. by about 9 percentage points.

“Obviously, manufacturers will try to absorb as much of that as they can, but inevitably some of it will be passed down to the consumer, which in this case is our farmers and ranchers,” he adds.

AEM is also sounding the alarm on the compounding effect of tariffs, specifically due to the tight integration of manufacturing cycles on both sides of the border. There are often cases, Eineberg says, where components and raw materials are shuttled three to five times across the border between different factories in the manufacturing process. That means each time a piece of steel or other raw material being manufactured into a component for a tractor crosses the border, the tariffs multiply.

An example of the cross-border journey of one piece of agriculture equipment from raw material to delivery on the farm.

(AEM)

Impact on Rural America and Fertilizer
American Farm Bureau President Zippy Duvall expressed alarm about potential harm to farmers resulting from imposing stiff tariffs on the top three agricultural markets by value for the U.S.

“Farm Bureau members support the goals of security and ensuring fair trade with our North American neighbors and China, but, unfortunately, we know from experience that farmers and rural communities will bear the brunt of retaliation.” Duvall says.

Of note, more than 80% of the U.S. supply of potash , a key fertilizer product, comes from Canada.

“Tariffs that increase fertilizer prices threaten to deliver another blow to the finances of farm families already grappling with inflation and high supply costs,” Duvall adds. “The uncertainty hits just as operating loans are being secured and spring planting approaches, leaving farmers in a tough spot.”

(Farm Journal)

Read: Fertilizer Manufacturers and Retailers React to Trade Tariffs

Impact on Soybeans
During the 2018 trade war with China, U.S. agriculture experienced more than $27 billion in losses, with soybeans accounting for 71% of those losses, according to the American Soybean Association (ASA). Unlike in 2018, farmers are in a more tentative financial situation in 2025. Commodity prices are down nearly 50% from three years ago, while the costs for land and inputs, such as seed, pesticides and fertilizer, are high.

In an ASA statement, it says for years the organization’s farmer-members have consistently maintained their position that they do not support the use of tariffs, which threaten important markets and raise input costs for farmers, as a negotiation tactic.

“Farmers are frustrated. Tariffs are not something to take lightly and ‘have fun’ with. Not only do they hit our family businesses squarely in the wallet, but they rock a core tenet on which our trading relationships are built, and that is reliability. Being able to reliably supply a quality product to them consistently,” says Caleb Ragland, ASA president and soybean farmer from Magnolia, Ky.

Soybeans by far make up the largest volume of ag products exported to China. In 2024, U.S. exporters sent 27 million metric tons of soybeans to China valued at $12.76 billion, according to USDA. Mexico is the second-largest customer for whole soybeans, soybean meal and soybean oil. Canada is the fourth-largest customer for soybean meal.

“Soybean producers face huge, disproportionate impacts from trade flow disruptions, particularly to China,” Ragland says. “And we know foreign soybean producers in Brazil and other countries are expecting abundant crops this year and are primed to meet any demand stemming from a renewed U.S.-China trade war.”

Impact on Corn and Ethanol Demand
Market analysis shows tariffs won’t solve the U.S. trade deficit and instead will just shift business to other countries, says Neil Caskey, CEO, National Corn Growers Association (NCGA).

“We issued a study back in the fall that documented the implications of tariffs and specifically retaliation in a trade war — it’s not good for corn farmers, farmers in general,” he says. “We did that in conjunction with the American Soybean Association, and it concluded a trade war is really only good for Brazil, and we hope to avoid that.”

The top two destinations for corn and ethanol are Mexico and Canada. According to Krista Swanson, chief economist, NCGA, 40% of U.S. corn exports go to Mexico and more than 40% of U.S. ethanol exports are shipped to Canada.

“[Corn] is a commodity [those countries] consume way more than what they produce, so they’re going to have to get it from somewhere,” she says. “There’s definitely some concern about losing corn [exports], but how much is lost is left to be seen because it depends on what happens with shifting trade flows.”

Impact on Beef and Pork Sectors
U.S. meat export could be impacted by the tariff war as well, with China singling out pork and beef for a 10% counter tariff. Mexico, China and Canada accounted for 8.4 billion in U.S. red meat exports last year, according to the U.S. Meat Export Federation (USMEF).

USMEF is disappointed no agreements were reached to avoid or postpone the tariffs, but president and CEO Dan Halstrom says just because there are tariffs, doesn’t mean trade will stop.

“I do think the thing that we have definitely in our favor is that demand for our products globally is record breaking. I mean, it’s as good as I’ve ever seen it in 40-plus years,” he says. “I think that we have a very unique product. We got to keep that in mind because that’s a big leverage point.”

Halstrom says it could be a bumpy ride for a while, but it’s not something exporters can’t overcome.

Read: Industry Comments on Retaliatory Tariffs on U.S. Pork and Beef