Mexico vows retaliation as Trump trade war erupts

By Kylie Madry and Brendan O'Boyle

MEXICO CITY (Reuters) -Mexican President Claudia Sheinbaum on Tuesday condemned U.S. President Donald Trump's 25% tariffs on imports from Mexico and said her government would respond with its own measures, without immediately providing details.

Trump's across-the-board tariffs, which took effect overnight, mark a turning point in over 30 years of economic integration between Mexico and the U.S. and could have deep repercussions on Latin America's second-largest economy.

Mexico and the United States are each other's top trading partners, with key industries such as the automotive sector benefiting from the cross-border movement of goods facilitated by their trilateral trade deal which also includes Canada.

"There is no reason, rationale or justification to support this decision that will affect our people and nations ... Nobody wins," Sheinbaum told a press conference.

She said she would give details on Mexico's response, including retaliatory tariffs, at an event in the capital's iconic Zocalo square on Sunday.

Sheinbaum added she would speak with Trump this week, "probably on Thursday."

Mexico's peso and main stock index weakened on Tuesday, with the peso down around 0.6% against the dollar and the index down 1% before mid-day.

ECONOMIC STORM CLOUDS

While Sheinbaum acknowledged the importance of Mexico's economic integration with the U.S., she also defended the strength of the Mexican economy, highlighting "historic" jobs and minimum wage numbers as well as a well-developed social safety net.

To weather tariff-related turbulence, Sheinbaum pitched cutting Mexico's imports and manufacturing some products locally, part of her government's broader "Plan Mexico" economic framework, while also sending exports such as Mexican avocados elsewhere.

Moody's analyst Alfredo Coutino predicted the tariffs would send Mexico into a recession, with the economy shrinking around 0.8%.

U.S. consumers and businesses will suffer from price hikes on products imported from Mexico, Sheinbaum said, with the automotive industry facing "the most problems" as auto parts can cross the border several times as a car is assembled.

Analysts estimate the tariffs could add billions of dollars in added costs for automakers that build their vehicles in whole or in part in Mexico, with Sheinbaum mentioning Detroit-headquartered General Motors as one of the carmakers likely to be most affected.

The Mexican leader called the tariffs a blatant violation of the U.S.-Canada-Mexico free trade agreement, which was negotiated during Trump's first term, and warned that legal action could come.

After delaying his decision for a month, Trump on Monday declared the tariffs would go into effect because Mexico, along with Canada and China, had failed to do enough to stem the flow of the deadly fentanyl opioid and its precursor chemicals into the U.S.

Sheinbaum said Mexico had taken "decisive actions" during the 30-day pause to bring down the amount of fentanyl moved into the United States.

In recent weeks Mexico has deployed thousands of soldiers to hot spots along its border with the U.S. and extradited nearly 30 jailed convicts and others accused of ties to violent drug cartels.

Rather than continue to make concessions to Washington, "Mexico should stop going above and beyond, avoid overreacting, and instead let time work in its favor," analysts at Bradesco BBI said in a note to clients, anticipating market fallout and pressure from the U.S. lobby could play to Mexico's advantage.

(Reporting by Kylie Madry and Brendan O'Boyle; Writing by Brendan O'Boyle; Additional reporting by Noe Torres and Natalia Siniawski; Editing by Stephen Eisenhammer, Christina Fincher and Alistair Bell)