“Economists are constantly questioned about their predictions regarding the economy. But economic predictions require predicting what politicians will do, and nothing is more unpredictable.”
Let’s consider as a reference that from 2018 to 2023, the United States decreased its consumption of Chinese electronics by 17 percentage points while increasing its consumption of electronics from the Asia-Pacific region (excluding China) by 20 percentage points. This means that while the U.S. reduced its consumption in China, it continues to rely on Asia; in short, Asia’s dependency remains highly significant for the U.S. economy.
Following the election and new era in the U.S., uncertainty has increased in several countries, particularly in Mexico. While the U.S. threatens to impose tariffs on imported products, China is announcing packages and incentives for reinvestment and investment. Additionally, central banks are tasked with making necessary adjustments to interest rates and designing monetary policies better suited to impending inflationary movements.
The Role of Tariffs and Their Impact on Regional Competitiveness
President Trump, if anything, has demonstrated that his signals trigger reactions. This means he does not need to implement policies or strategies for other countries to react. In particular, regarding tariffs on Chinese products, beyond the tariffs themselves, it is important to understand that he is targeting 40% of China’s GDP, which is represented by manufacturing. By taxing such a significant component of the country’s economy, China is likely to slow its production rate, leading to internal issues such as reduced consumption and inflation.
For Mexico, new tariffs on certain sensitive products imported from China take effect in December. Unfortunately, even with an additional 15% to 35% in tariffs, it remains more economical to source materials from China than within the TMEC region. It is also important to note that the U.S. president can impose tariffs of up to 15% for 150 days without Congressional approval. Few people know this, making it a critical aspect of U.S. strategy.
When we integrate industrial, investment, and talent issues into an economy, we begin to assess how many variables we can control. In times of uncertainty, decisions regarding productivity are made faster, while expansion decisions slow down. By 2025, we expect to focus more on resource restrictions and seek new ways to grow regional economies.
Perspectives for 2025: Innovation, Decarbonization, and Industrial Challenges
According to various articles on manufacturing (Forbes, McKinsey, The Economist), Europe must adopt innovation standards similar to those in the U.S. and China by 2025. It is essential to understand that decarbonization is more than a policy; it requires transforming production methods and devising realistic strategies for dependency on critical materials from other countries.
Meanwhile, the U.S. faces a problem with its nuclear energy capacity, currently at 94% utilization, with only 6% under construction. In contrast, China, its main competitor, has significant excess capacity (33% utilization, with 67% under construction).
Globally, products have risen in price by an average of 20% to 25%, while wages have not increased proportionately. Additionally, the Purchasing Manager Index (PMI) has remained below the neutral level of 50.0 in the TMEC region. For example, in October, the U.S. reported a PMI of 48.5, up from 47.3 in September. Meanwhile, India recorded 57.5 in the same months, with any point above 50.0 indicating growth.
While tariffs will pose a challenge for Mexico, it is crucial to separate the issue into two scenarios: tariffs at the national level and tariffs at the sector level. In 2023, the largest trade deficits of the U.S. were (in descending order) with China, Mexico, Vietnam, Germany, and Canada. The most affected sectors were electronics, machinery-equipment, and transportation equipment. By the second quarter of 2025, we will likely see how much consumers can absorb the price increases of sensitive products, as outlined in Mexico’s December 2024 Diario Oficial de la Federación (DOF). This aims not only to combat piracy but also to generate revenue.
If we ask ourselves, What are the implications of tariffs for my cost base? the answers will be less philosophical and more practical. They will prompt questions such as: Do we have the right talent, the right supplier, the right partner, the right bank? Do we have the right team to develop capital appropriation strategies or pricing definitions? Are we manufacturing in the right country based on what our consumers are willing to pay?
I take this opportunity to congratulate Adriana Eguía on her recent appointment as president of this important and relevant organization. I am proud to have witnessed her progressive career over the years, and I wish her the best of success in this new challenge. I am confident she has the capacity to lead a great project.
Luis Manuel Hernandez, PhD, Coordinator of the Nearshoring and USMCA Compliance Dialogue Table
LI. https://www.linkedin.com/in/lmhg/
X. @LuisMHernandezG
