Tariffs on Mexico’s exports to the U.S. are poised to hit at a particularly difficult time for the country’s factories.
Mexico’s manufacturing sector contracted at its fastest pace in five months in February, as declining U.S. demand and a steep drop in exports deepened the downturn. The latest S&P Global Mexico Manufacturing PMI fell to 47.6 from 49.1 in January, marking the eighth consecutive month of contraction. With new U.S. tariffs on Mexican imports set to take effect, businesses in both countries are bracing for further disruptions.
The sharpest decline came from factory exports, which fell at the fastest pace since April 2021, reflecting weakening U.S. demand for Mexican-made goods. The downturn hit automotive, electronics, and industrial manufacturing sectors the hardest, raising concerns about broader supply chain disruptions. As U.S. businesses shift supply chains and frontload purchases ahead of anticipated tariffs, Mexican manufacturers have started cutting jobs and reducing production capacity in response.
The slowdown comes as President Donald Trump’s administration prepares to impose a 25 percent tariff on Mexican imports, part of a broader push to reshape U.S. trade policy and incentivize domestic production. Mexico, which has become the United States’ largest trading partner, has been a primary target of Trump’s trade agenda, particularly as nearshoring trends led to increased reliance on Mexican manufacturing in recent years.
Job Losses and Weakening Business Confidence
In response to declining orders, Mexican factories cut jobs at the fastest pace in three years, according to the S&P Global report. Business confidence among manufacturers fell for the fourth straight month, reaching its lowest level since September 2024. Many firms cited concerns over tariffs, inflation, competition, and weakening investment flows.
Despite widespread fears of economic slowdown, U.S. trade officials have framed the tariffs as a necessary step toward rebalancing North American trade. A senior administration official noted that the goal is to encourage American companies to bring manufacturing jobs back to the U.S., rather than relying on low-cost production in Mexico.
Economic Uncertainty on Both Sides of the Border
Some U.S. businesses that depend on Mexican suppliers have expressed concerns about rising costs and supply chain disruptions. Industries such as auto manufacturing and electronics assembly—which source components from Mexican factories—may face temporary price increases as they adjust. However, supporters of the policy argue that the long-term benefits of strengthening U.S.-based production and employment outweigh the short-term disruptions.
Meanwhile, Mexican manufacturers are facing tight cash flows and inventory reductions, with many firms producing only to meet immediate demand rather than stockpiling goods. The Mexican peso has also weakened, driving up the cost of imported materials for manufacturers already dealing with supply chain delays and uncertain export conditions.
Tariffs Set to Reshape U.S.-Mexico Trade Flows
With Mexico’s manufacturing sector under increasing strain, analysts expect further disruptions as tariffs are phased in. Some businesses may seek to relocate production back to the U.S. or explore alternative suppliers in Central America or Asia. Others may absorb tariff costs in the short term but raise prices if trade restrictions remain in place.
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