The Mexico automotive industry is facing its most significant challenge since the USMCA was signed. In May 2025, vehicle production dropped by 2%, and exports fell by 2.8% compared to the same month last year. The decline is directly linked to new tariffs imposed by the Trump administration, particularly targeting the automotive, steel, and aluminum sectors.

Although vehicles complying with USMCA regional content rules are temporarily exempt, non-certified imports from Mexico are now subject to 25% tariffs. These trade measures have already caused notable disruptions.

Economic and Market Impact of Tariffs

Investor confidence has also taken a hit. Automakers with operations in Mexico have seen their stock values fall: General Motors dropped 3.5%, Ford 1.6%, and Stellantis by 6.5%.

Economists argue that these tariffs are economically unsound, potentially raising the final price of vehicles by as much as $12,000—hurting both U.S. consumers and American manufacturers with operations in Mexico.

The Mexico automotive industry contributes around 4% to the national GDP and 20.5% to the manufacturing GDP, employing over one million people. Around 80% of the vehicles produced in Mexico are exported to the U.S., highlighting how crucial exports are to this sector.

Ripple Effects on the Automotive Supply Chain

The slowdown isn't limited to automakers. The entire supply chain—including parts manufacturers, logistics providers, and service companies—is under pressure. Brands like Mazda, Audi, and Stellantis reported production and export declines of 20–34% in May. In contrast, Toyota and Honda, with stronger regional integration under USMCA, showed production growth.

Key Scenarios and Strategic Responses

The future of the Mexico automotive industry depends on several evolving factors:

1. Tariff Policy in the U.S.

While current exemptions under USMCA offer temporary relief, their medium-term stability remains uncertain. Continued pressure from the U.S. could hinge on political issues like migration and security.

2. Mexico’s Government Response

Mexico may consider retaliatory measures if the U.S. continues breaching USMCA terms. The next agreement review will be pivotal to securing long-term tariff stability.

3. Accelerating Nearshoring

Nearshoring has gained momentum, with many global firms relocating to Mexico to escape Asia-focused tariffs and take advantage of proximity, skilled labor, and USMCA benefits. The rise in foreign direct investment during Q1 2025 supports this trend.

4. Automaker Strategies

Companies may either absorb tariff costs, shift operations to the U.S., or increase regional integration to meet USMCA requirements. However, these adaptations demand time and significant investment.

Conclusion: USMCA as a Strategic Tool, Not a Guarantee

To stay competitive, Mexico must preserve its USMCA exemptions, pursue effective trade defense strategies, and accelerate nearshoring initiatives. Without these actions, the Mexico automotive industry risks long-term decline in production, exports, employment, and GDP contribution.

The immediate goal is clear: balance diplomacy with a smart industrial strategy. Only then can Mexico avoid becoming a bargaining chip in future trade talks with the United States.