US-Mexico Trade Talks: 90-Day Negotiation Period Begins Amid 25% Tariffs

Washington: The United States and Mexico have embarked on a 90-day negotiating period in order to forge a long-term trade agreement, according to President Donald Trump. The decision comes as the two countries are brainstorming on tariffs and trade barriers, with Trump's administration imposing a 25% tariff on goods imported from Mexico. The tariffs, seemingly linked to fentanyl trafficking, will remain in place during the negotiation period.

The trade imbalance between the US and Mexico had grown substantially since Trump's first term, with the US running a $171.5 billion trade deficit with Mexico last year. The US President has made it a goal to close this trade gap, and the ongoing negotiations are a crucial step in this direction. The USMCA, which Trump negotiated during his first term, provided some protection for certain goods, but the president appears to have soured on the deal, which is up for renegotiation next year.

The US-Mexico trade talks are progressing, with a possible agreement centred on establishing a tariff-rate quota system to lower tariffs on Mexican steel imports. Mexico currently ranks as the third-largest supplier of steel to the United States, accounting for 12% of total imported steel. The proposed quota would allow around 2,799,228 metric tons of Mexican steel to enter the United States annually without incurring the 50% tariff.

Tariffs And Trade Barriers

During a phone conversation with Mexican leader Claudia Sheinbaum, Trump announced that autos would face a 25% tariff, while copper, aluminium, and steel would be taxed at 50%. Sheinbaum noted that Mexico would avoid the tariff increase announced for the following day and would instead engage in dialogue to build a long-term agreement. 

The existing framework of the United States-Mexico-Canada Agreement (USMCA) ensures that nearly all traded goods between the two countries remain tariff-free. Sheinbaum wrote on X, "We avoided the tariff increase announced for tomorrow and we got 90 days to build a long-term agreement through dialogue."

USMCA And Future Trade Relations

The USMCA, which replaced NAFTA in 2020, is to promote trade and economic growth between the US, Mexico, and Canada. However, the Trump administration appeared to have soured on the deal, which is up for renegotiation next year. The agreement has been instrumental in strengthening North America's competitive position in global markets. Both Donald Trump and Claudia Sheinbaum have signalled strong interest in revitalising domestic manufacturing, with the US President's focus on reshoring American production and Sheinbaum's vision for expanding Mexico's industrial base.

The Trump administration sources indicated that the president is keen to renegotiate certain aspects of the agreement, particularly the automotive rules of origin. With the agreement up for review in 2026, the stakes are high for the US, Mexico, and Canada to navigate these trade negotiations.

What Will Be Economic Impact

The trade imbalance between the US and Mexico has grown substantially since Trump's first term, with the US running a $171.5 billion trade deficit with Mexico last year. The US President has made it a goal to close this trade gap, and the ongoing negotiations are a crucial step in this direction. The imposition of tariffs can disrupt supply chains, increasing costs for manufacturers that depend on Mexican imports, which can further lead to job losses and economic instability in regions heavily reliant on manufacturing jobs.

The 90-day negotiating period will be crucial in determining the future of US-Mexico trade relations. Both countries will need to navigate the complexities of tariffs and trade barriers while seeking to find common ground that mitigates the adverse effects of tariffs on farmers, producers, and manufacturers. The outcome of these negotiations will have significant implications for the economic landscape of both nations.