The Rachman Review
Episode: Mexico hopes to stave off Trump tariffs
Host: Gideon Rachman (Financial Times)
Guest: Luis de la Calle (Mexico’s leading trade economist)
Date: March 20, 2025
Episode Overview
This episode, recorded in Mexico City, centers on the looming threat posed by Donald Trump's proposed tariffs against Mexico and the potential repercussions for both Mexico's political stability and economic future. Gideon Rachman speaks with trade economist Luis de la Calle, a key architect of NAFTA, to assess the reality and impact of these tariffs, the current stance of the Mexican government, and what it all means for US-Mexico relations and North American trade integration.
Key Discussion Points & Insights
1. The Gravity of Trump’s Tariff Threats
- De la Calle describes the US tariff threat as “a very significant change,” warning it could undermine not only the USMCA (the successor to NAFTA) but also global trade (02:51).
- There is concern that if the US reneges on its trade commitments, Mexico might question its market reforms from the 1990s and return to a more closed, state-controlled economy (03:51).
Luis de la Calle (02:51):
“Mexico made a gamble based on the assumption that the US will keep its side of the deal and we'll see whether that happens now.”
2. Mexico’s Economic Dependence on the US
- 32% of Mexico’s GDP comes from exports to the US – almost 80% of all Mexican exports go north (05:03).
- The strongest regions of Mexico’s economy (north and center) owe their success to integration with the US.
- If trade backslides, Mexico’s most dynamic economic sectors are at risk (05:39).
De la Calle (05:03):
“Exports to the US are 32% of Mexico's GDP. ... The best jobs in Mexico, the better companies, depend deeply on the US.”
3. Recent Tariff Developments & Complex US-Mexico Relations
- Trump has imposed several rounds of tariffs, many conditional on Mexican cooperation on migration and fentanyl trafficking (06:29–07:48).
- Some tariffs are fleeting, raising uncertainty and confusion in both economies (07:48).
- About half of Mexican exports to the US do not qualify under USMCA rules and could be subject to high new duties (08:02).
- Mexico’s softer stance compared to Canada is strategic, factoring in migration and drug issues (08:47).
- Despite both facing tariffs, Mexico and Canada have chosen different response strategies, yet with similar results so far (09:41).
4. Business and Political Responses in Mexico
- Mexican businesses are less panicked than in 2016, but uncertainty is cooling investment (10:10).
- 2024 Mexican economic reforms (reducing judicial independence) have made the country more vulnerable and less competitive (10:47).
- High poverty levels in Mexico mean social and economic pain from tariffs would be severe, but also that Mexicans may be more resilient (11:24).
5. The Reality of North American Industrial Integration
- Trump’s re-industrialization plans for the US ignore the deep integration between US and Mexican manufacturing; jobs move together (12:01).
- The US lacks the workforce to shift assembly back home, even with incentives, as proven by Foxconn’s failed Wisconsin plant and thriving Mexican operations (13:35).
- Imposing tariffs on agricultural or manufactured Mexican goods would quickly spike prices in US supermarkets (15:21).
De la Calle (12:01):
"If Trump's aim is to reindustrialize the US, he will industrialize Mexico, because we move together.”
De la Calle (14:14):
“No matter how much you increase the wage in the US, you will not find enough workers to do it.”
6. Broader Negotiations: Drugs, Migration, and Security
- Trump has linked tariffs to Mexico and Canada’s cooperation on fentanyl and migration, making trade negotiations even more fraught (17:14).
- The use of tariffs as leverage for unrelated policy goals complicates finding stable, rational solutions (17:14).
- Collaboration is needed: US needs Mexico for trade, drugs, and migration, even as both sides publicly blame each other (21:03).
De la Calle (17:14):
“Without collaboration on fentanyl and migration, the probability of an amicable solution to trade is close to nil.”
7. Risks of Escalation and Future Scenarios
- As rhetoric heats up in the US, Mexicans worry about US military action against drug cartels, and about “red lines” being crossed (20:08).
- Economic uncertainty is depressing investment – 2025 projections show a drop from 25% to 23% of GDP (23:57).
- There’s concern that if trade collapses, Mexico could relapse into protectionism and authoritarian politics – a reversal of 30 years of democratization and openness (25:35–26:31).
De la Calle (25:35):
“The revolution of opening up the economy and the revolution of moving away from a single party system ... run parallel ... If we lose open trade, that will reinforce the centralization of power.”
Notable Quotes & Memorable Moments
- On the illusion of “re-shoring” US factories:
“When you have more production in the US, you'll get more production in Mexico ... If Trump's aim is to reindustrialize the US, he will industrialize Mexico, because we move together.” (12:01, Luis de la Calle)
- On food dependency:
"In 2024, 27% of the US total imports of food came from Mexico... So is it credible to impose a 25% duty and prevent migrant workers? ... That would be the most ambitious program to reduce obesity in the US." (14:14, de la Calle)
- On the political backsliding risk:
“If we lose the open trade inclination, that will reinforce the centralization of power ... prevalent in many countries around the world." (25:35)
- On Mexican resilience:
“Maybe Mexicans have a higher threshold of pain because of that than Canadians have. And Americans.” (11:37)
- On long-term optimism:
“The rational arguments in the end will win. I mean, the reality will impose.” (15:58)
Timestamps of Key Segments
- 00:02–02:51: Introduction, importance of NAFTA/USMCA, overview of Trump’s tariff threats
- 05:03–06:09: Mexican economic dependency on US trade
- 06:29–09:57: Trump’s tariffs—types, conditions, Mexico vs. Canada responses
- 10:10–11:44: Response from businesses, vulnerabilities due to domestic reforms
- 12:01–15:09: US-Mexico industrial integration, labor shortages, Foxconn anecdote, food and manufacturing dependency
- 17:14–19:40: How drugs and migration shape trade negotiations, chance for resolution
- 20:08–22:30: Military tensions and escalation fears, mutual US-Mexico dependency, security situation
- 23:57–25:08: Impact of uncertainty on investment, policy implications
- 25:35–28:36: Danger of backsliding on democracy and openness, risk of recession/depression in Mexico, likely US inflation and increased migration
Tone and Atmosphere
The episode maintains a frank, analytic tone. Rachman’s questions are probing; de la Calle offers practical, sometimes wry, but ultimately optimistic analysis—he is a “rationalist” advocating for reasoned, integrated solutions, but acknowledges deep uncertainty and the risk of regression for Mexico.
Conclusion
The conversation warns that the stakes in the current trade standoff are not just economic, but social and political. Both the US and Mexico find themselves at a crossroads: will the economic integration of the past 30 years endure, or will it unravel, triggering instability and migration? De la Calle believes that, ultimately, mutual dependencies and rational arguments will bring about a resolution, but admits the road may be rough and Mexico’s liberal democracy is at risk if openness is abandoned.