External Pressures, Internal Costs, and Labor Market Signals
Mexico’s economy is navigating a complex landscape that combines external pressures, rising internal costs, and signals of weakness in the labor market.
External Pressures: Tariffs and Trade
The reinstatement of tariffs by the Trump administration, set for October 29, will significantly increase the cost of automotive, agroindustrial, and auto parts exports—key pillars of Mexico’s economy. Originally a temporary measure to pressure Mexico on migration issues, the tariffs’ return will negatively impact competitiveness and supply chains within the T-MEC.
President Claudia Sheinbaum’s government seeks new negotiations with the United States, but expectations are low due to the U.S. government’s protectionist stance.
Internal Costs: Rising Employment Challenges
Internally, the consequences are already being felt in employment. The IMSS reported a loss of 34,000 formal jobs in September, primarily in manufacturing, construction, and services.
Although the Bank of Mexico reduced the reference interest rate to 7.50% on September 25, credit costs remain high and limit business expansion. Hacienda confirms a slower pace of public spending, while INEGI indicates that labor informality has surpassed 54%, driven by illegal subcontracting and a lack of incentives to maintain formal jobs.
The cost of sustaining formal employment has also skyrocketed. According to COPARMEX and the Coordinating Council of Business Chambers (CCE), increases in IMSS contributions, new local taxes, and salary minimum adjustments have raised labor costs by an average of 50% over 2025. SMEs, which generate 70% of national employment according to the 2024 Economic Census, face double pressure: reduced domestic consumption and increased tax obligations.
The CCE has requested relief measures and tax deductions, but the government has yet to respond.
Balancing Act: Addressing the Dual Pressure
Mexico’s productive structure faces a two-pronged pressure: external, from Trump’s trade policy, and internal, from the rising cost of formality.
The INEGI’s Business Confidence Indicator fell by 1.7 points in September, reflecting private sector concern over the combination of trade uncertainty and rising costs.
The result is evident: less formal employment, more informal economy, and an unfavorable investment environment.
To prevent this combination of factors from leading to a lower growth cycle and structural precarization, President Sheinbaum must balance her social policy with a flexible economic agenda.
Recent reports from the OECD and the World Bank recommend boosting private investment by ensuring regulatory stability, accelerating public works execution, simplifying procedures, and offering tax incentives to SMEs. Hacienda’s National Development Plan 2024-2030 agrees that raising productivity and technical training is crucial for sustaining better wages without suffocating businesses.
Only a strategy combining legal certainty, fiscal discipline, and dialogue with the productive sector can help mitigate the impact of tariffs and prevent current labor vulnerability from turning into prolonged stagnation.
Key Questions and Answers
- What are the external pressures facing Mexico’s economy? External pressures include tariffs imposed by the Trump administration, which affect Mexico’s key export sectors like automotive, agroindustrial, and auto parts.
- How are internal costs impacting Mexico’s employment? Rising labor costs, including increased IMSS contributions and new local taxes, have led to a 50% average increase in labor costs by 2025. This, combined with reduced domestic consumption and increased tax obligations for SMEs, is affecting formal employment.
- What measures are being proposed to address these challenges? Proposals include ensuring regulatory stability, accelerating public works execution, simplifying procedures, and offering tax incentives to SMEs. Additionally, raising productivity and technical training is seen as crucial for sustaining better wages without burdening businesses.
