Mexican President Claudia Sheinbaum said on Tuesday that they will respond to the US' tariffs with tariff and non-tariff measures, as reported by Reuters.
Key takeaways
"Mexico took measurable steps to fight fentanyl trafficking and crime."
"There is no reason or justification for US tariff decision."
"US government also needs to take responsibility for opioid crisis."
"Cooperation between both countries is necessary to fight opioid crisis, crime."
"Not our plan to start a trade confrontation."
"No one wins with this decision."
"Will announce retaliatory measures on Sunday."
Market reaction
Safe-haven flows dominate the action in financial markets following these comments. At the time of press, the S&P 500 Index was down 1.6% on the day.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
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