International trade faces a new challenge with the imposition of 25% tariffs by the United States on products from Mexico and Canada. This measure, aimed at reducing the flow of undocumented immigrants and illicit drugs, creates market uncertainty and has significant economic implications.

At Dentons, we analyze the global and regional impact of these tariffs, as well as key strategies that businesses can adopt to mitigate their effects and sustain growth in a dynamic environment.

A Local Issue with Global Reach

Trade tensions between the United States, Mexico, and Canada affect not only their economies but also global supply chains. Key industries, such as automotive, agriculture, and energy, are at the center of the dispute, with imports worth billions of dollars now subject to new tariffs.

The effects of this measure extend beyond North America:

• Europe and Asia are cautiously monitoring the situation, concerned that these tariffs could set a precedent for future trade disputes.
• Latin America, especially Central America, could benefit by becoming an attractive destination for new investments and exports.
• Global trade could be reshaped, with companies seeking diversified markets and more efficient supply chains.

Regional Impact: Mexico, Canada, and Central America in the New Scenario

Mexico and Canada have already announced trade retaliations, potentially triggering a trade war with adverse effects on investment and economic growth. The main risks include:

• Decline in foreign direct investment due to regulatory uncertainty.
• Rising costs for consumers and businesses, impacting domestic consumption.
• Possible recession in Mexico due to disruptions in bilateral trade with the U.S.

For Central America, however, this situation presents strategic opportunities:

• Nearshoring: Companies seeking to avoid tariffs may relocate operations to the region.
• Export expansion: Sectors such as manufacturing and agriculture could gain competitive advantages.
• Increased investment in infrastructure and logistics to establish the region as a key trade hub.

Tax Benefits for Companies Relocating to Central America

Companies that choose to set up operations in the region can access incentives such as:

• Tariff reductions: Exports from Central America to the U.S. may benefit from reduced or eliminated tariffs under agreements like CAFTA-DR, lowering costs and improving competitiveness.
• Tax incentives: Exemptions on income taxes, Free Trade Zone regimes, and reductions in property and local taxes for specified periods.
• Customs facilitation: Free trade agreements streamline customs procedures, reducing time and costs for imports and exports.
• Market access: Companies operating in Central America can leverage preferential access to the U.S. and other countries with existing trade agreements.
• Incentive programs: Some countries offer tax exemptions, preferential financing, and technical assistance, such as Free Trade Zone incentives for strategic sectors like manufacturing, technology, and agriculture.

These benefits position Central America as an attractive alternative for companies looking to cut costs and expand operations in a challenging international landscape.

Business Strategies: Growth and Protection

The new U.S. tariffs on Mexico and Canada mark a turning point in global trade. While uncertainty persists, businesses that adopt proactive strategies will be able to minimize risks and seize new opportunities.

At Dentons, we provide expert legal counsel and a strategic approach to help our clients navigate these challenges and strengthen their growth in an ever-evolving global environment.