Originally published at Project-Syndicate | Mar 3rd, 2025
US President Donald Trump’s border crackdowns and planned tariffs on Mexican goods could push Mexico into a deep recession. Rather than reducing migration, these policies will likely cause widespread economic hardship, driving even more people to leave for the United States.
WASHINGTON, DC – When Mexican President Claudia Sheinbaum took office last year, she faced a daunting set of political and economic challenges: rising debt, fiscal deficits, rampant drug-cartel violence, and an escalating crisis at the US border. As if that weren’t enough, US President Donald Trump has threatened sweeping tariffs on Mexican imports which, if imposed, could cripple Mexico’s economy and further destabilize its political system.
The loss of half its territory following the US invasion of 1846, which marked the beginning of the Mexican-American War, remains deeply ingrained in Mexico’s public consciousness. Given this historical trauma, it is no surprise that Trump’s recent actions have triggered widespread outrage in Mexico.
Over the past six weeks, Trump renamed the Gulf of Mexico the “Gulf of America” and threatened military intervention on Mexican territory, citing Mexico’s failure to stop migrants and fentanyl from crossing the border. The Trump administration has also closed the border to asylum seekers, who had previously been allowed entry while awaiting adjudication of their claims. This has placed immense strain on Mexican authorities, who have been forced to expand short-term humanitarian facilities to accommodate the growing number of migrants stranded on their side of the border.
But Trump’s most consequential action is his decision to impose a 25% tariff on Mexican goods, which will almost certainly push Mexico into a recession. While Sheinbaum managed to secure a 30-day delay by agreeing to deploy an additional 10,000 Mexican troops to police the US border, Trump stated that the tariffs “are going forward on time, on schedule,” before sowing further confusion over their timing. Assuming that the tariffs enter into force and a recession occurs, the consequences for both the Mexican and US economies could be far-reaching, fueling even greater migration pressure.
Heavy reliance on trade with the United States makes Mexico particularly vulnerable to American policy shifts. Mexico is the world’s eighth-largest exporter, with exports accounting for roughly 43% of its GDP. In 2023, it surpassed China to become America’s biggest trading partner, underscoring its economic dependence on its northern neighbor.
About 80% of Mexican exports are destined for the US, with parts and components used for assembling final goods, such as cars and machine tools, comprising nearly 90%. Many items cross the border seven or eight times before reaching their final form, as manufacturing involves multiple stages, each requiring additional components. In addition to goods, the country also relies on trade in services, which accounted for 7.4% of GDP in 2023.
Mexico’s economic integration with the US and Canada was formalized in 1992 with the North American Free Trade Agreement (NAFTA). During his first term, Trump described NAFTA as the “worst trade deal ever made” and insisted on renegotiating it. The resulting changes were minor, but the agreement was rebranded as the US-Mexico-Canada Agreement (USMCA).
While economic integration benefits Canada and the US, it is especially critical for Mexico. In 2024, its GDP per capita, in purchasing-power-parity terms, was $25,000 – less than one-third that of the US. Beyond trade in goods, Mexico’s economy also depends heavily on foreign investment, US tourism, and remittances.
Consequently, even if Trump abandons his plan to impose 25% tariffs on Mexican goods, Mexico could still be hit hard by his trade policies. During his presidential campaign, Trump proposed a universal 10% tariff on all imported goods. He has also repeatedly railed against countries running trade surpluses with the US. While Mexico is one of those countries, its trade surplus is relatively small compared to those of China and the European Union.
To be sure, trade is only part of the equation. Trump and his supporters have long blamed Mexico for the steady flow of migrants to the US, characterizing it as an “invasion.” Yet, although the overall number of migrants attempting to cross the US southern border has surged in recent years, illegal migration from Mexico actually has declined by 34% since 2007. Between 2005 and 2014, more Mexicans left the US than entered it. Of the 13 million migrants who attempted to cross the border between 2015 and 2022, the vast majority were Central and South Americans transiting Mexico on their way north.
The decline in Mexican migration largely reflects rising living standards, made possible by free trade. But despite this progress, remittances from migrants in the US remain an important pillar of Mexico’s economy, accounting for 4.5% of GDP in 2023.
Trump’s return to office has cast a dark shadow over Mexico’s economic prospects. His tariffs, if implemented, will probably mean job losses, falling wages, and a severe growth downturn. Ironically, a US-induced recession in Mexico would likely drive more migration northward, undermining Trump’s stated goal.
Despite repeated US efforts to tighten border controls, there is a consensus among economists that legal migration should increase significantly. The steady influx has been a key factor driving GDP growth, helping the US outperform most other advanced economies. Severely restricting immigration would slow workforce growth, threatening the economy’s long-term prospects. The most effective solution would be to simplify the legal immigration process and upgrade the status of undocumented migrants, but legislative gridlock has delayed much-needed reforms.
Meanwhile, uncertainty over Trump’s tariffs has already reduced capital inflows to Mexico, though the decline has been partly offset by companies relocating production from China. But the risks extend far beyond Mexico and the US. According to Global Trade Alert, 117 of the 173 countries assessed are at risk of US trade retaliation, with Mexico ranking among the top 15.
Beyond the immediate damage, Trump’s decision to target a key US trading partner over non-trade issues sets a dangerous precedent that undermines the foundations of the international economic order. The entire global economy could end up paying the price.
Anne O. Krueger: A former World Bank chief economist and former first deputy managing director of the International Monetary Fund, is Senior Research Professor of International Economics at the Johns Hopkins University School of Advanced International Studies and Senior Fellow at the Center for International Development at Stanford University. She is the author of International Trade: What Everyone Needs to Know (Oxford University Press, 2020).
