Some 130 miles northwest of Mexico City, the state of Querétaro has a reputation for being one of the country’s safest places. Legend has it that this is because it is where the families of some of Mexico’s most infamous drug lords reside. “But that’s what people always say about the safe parts of Mexico,” quipped one local.
Agriculture has historically been the driving force behind Querétaro’s economy, with the largely arid landscape punctuated by green fields here and there. Maize was the staple crop in this part of the world, but farmers are now turning their hand to wine making.
The vineyards are a sign that the region is gentrifying in response to white-collar workers being drawn to an area that now boasts flourishing services and manufacturing sectors. Airbus, Michelin, the home appliances company Bosch and accountancy firm PwC are among the multinationals to have set up in the state. And new residents can enjoy watching top-flight football team Club Querétaro, which was catapulted from obscurity with the signing of Brazilian World Cup winner Ronaldinho in 2014.
Wages in Querétaro have almost doubled over the past decade, rising from an average of 323 pesos (£12.50) a day in 2014 to 629 pesos in 2024. The average across Mexico at the end of 2024 was 587 pesos.
And now, the German postal giant DHL has picked Querétaro as the location for a $120 million (£95 million) logistics hub — the biggest in Latin America.
The timing of the hub’s opening, however, was altogether more curious, coming as Mexico finds itself in the cross-hairs of the latest tariff war on companies exporting to the US.
“Whatever is happening in the world with respect to tariffs, trade is resilient,” DHL Express chief executive John Pearson insisted during the hub’s ribbon-cutting event, under a scorching sun, on Thursday. “Global trade is too big to fail.”
It was a bold claim in a week when the foundations of global trade were rocked to the core by the protectionist actions of US President Donald Trump.
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Trade war’s ground zero
Political leaders in Mexico will be hoping that Pearson’s optimism has merit. Because when it comes to trade and the economic fallout from Trump’s tariffs, the country is at ground zero.
About 80 per cent of the country’s exports are bound for the States. The popularity of “near shoring” — choosing suppliers that are nearby geographically — has brought significant benefits for Mexico. It is now America’s biggest trading partner.
As such, Trump’s plans for a 25 per cent import tax, now put temporarily on hold, would be devastating for Mexico’s economy.
“Mexico is to be respected,” president Claudia Sheinbaum told thousands of people at a rally in the capital’s vast Plaza de la Constitución last Sunday, where followers cheered her on and waved flags and placards.
Such demands for respect have yet to yield concrete threats of retaliatory tariffs, however. Sheinbaum’s administration is working to placate the White House by engaging in talks to curb illegal migration from Mexico into the US and address the large volumes of fentanyl and other drugs that are smuggled across the border.
Shots fired
Her more conciliatory approach contrasts sharply with Canada, the US’s second-biggest trading partner.
Like Mexico, Canada is staring down the barrel of 25 per cent import tariffs. And although these have been similarly suspended, tensions flared on Tuesday after the province of Ontario announced new charges of 25 per cent on electricity exported to the US. This prompted the White House to threaten to hike tariffs on aluminium and steel from Canada to a special rate of 50 per cent.
Stock markets whipsawed as the trade spat played out in public. By the end of the day, both sides had retreated on their respective increases. But the US is still imposing 25 per cent import taxes on steel imports from around the world, and these came into effect on Wednesday.
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Cue an announcement by Canada’s finance minister, Dominic LeBlanc, of plans for an additional charge on C$29.8 billion (£16 billion) worth of American goods. And on this side of the Atlantic, the EU unveiled €26 billion of retaliatory tariffs on US products.
“Whatever they are charging us, we’ll charge them,” responded Trump. And so on Thursday he revealed plans for 200 per cent tariffs on any alcohol coming from the EU — putting French wine and cognac in the crosshairs.
In the UK, Sir Keir Starmer opted for a more conciliatory tone as the prospect of 25 per cent import tariffs became a reality for British steelmakers. Starmer is determined to be pragmatic as he vowed to “keep all options on the table”.
George Buckley, chief European economist at financial services group Nomura, said: “It appears that Starmer has a more amicable relationship with Trump on trade policy and more generally. The fact that, according to the US Census Bureau, the US runs a goods trade surplus — rather than a sizeable deficit — with the UK likely helps this relationship.”
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Correction territory
So far, only a comparatively small number of protectionist measures have actually been put into force by the White House. But tit-for-tat statements have been enough to convince stock market investors that a major retrenchment of global trade is on the cards.
American indices last week entered “correction” territory — a fall of 10 per cent or more from a recent peak. The wider MSCI World index, a closely watched basket of global equities, is down more than 7 per cent since mid-February.
Perhaps even more significant is the slowdown in demand for oil. The International Energy Agency (IEA) last week downgraded its growth estimates for the first three months of 2025 to about 1.2 million barrels a day, warning that demand for crude had “deteriorated over the past month as trade tensions escalated between the United States and several other countries”.
That said, the forecast downgrade still leaves demand in a better position than last year. The IEA reckons that consumption will be an average of more than a million barrels a day this year, up from 830,000 in 2024.
‘Like Brexit — but worse’
KPMG is warning its clients to brace for Trump to follow through with his tariff threats. Tim Sarson, UK head of tax policy at the accountancy firm, likened the fallout for the US, Mexico and Canada to the UK’s exit from the European Union.
“The issue we had around Brexit was that you’d have goods that might be passing between, say, the UK and the Netherlands and Belgium and France, and back again three or four times, because we’re all in the same region,” he said.
“It’s the same but with fewer countries in North America — Canada, the US and Mexico. It’s like their Brexit, it’s just happening more quickly than Brexit where we argued for four years about it, whereas there it’s a just a stroke of a pen and you’ve got tariffs”.
DHL remains bullish, however. Last week, in conjunction with New York University, the German delivery giant published a report that analysed trade across about 200 countries, taking into account more than 220 million data points. It concluded that trade volumes would rise by an annual average of 3.1 per cent between 2024 and 2029, far higher than the 2 per cent experienced from 2019 to 2024, and the 2.7 per cent in 2014-19.
The 3.1 per cent estimate assumes that Trump implements about a quarter of all his threatened tariffs. But even in a worst-case scenario, where all of the threatened import taxes become a reality, the report envisages that trade volumes will continue to grow, albeit at a slower pace.
Strong fundamentals
“The fundamentals of trade are strong,” said Pearson at DHL Express. “The volatility of trade politics is more volatile than trade itself.” The British-born executive believes that common sense will prevail when the White House understands the economic fallout from its protectionism.
“A lot of tariffs have been suggested,” he said. “Some have been executed ,some have been repealed. And the stock market has dropped. I don’t think Elon Musk was expecting Tesla to be down 45 per cent or so.”
And if Americans feel the stock market turmoil in their retirement savings, they will be even less happy about the prospect of rising prices as companies pass the impact of tariffs — or the additional cost of onshoring production to avert them — onto customers. “Prices will definitely go up for American consumers,” said Sarson of KPMG.
Back in Querétaro, how the next few weeks and months play out will prove pivotal as to whether the region can continue attracting more international companies.
Pearson, at least, is defiantly optimistic. As a chief executive of an organisation that claims to be “the most global company in the world”, perhaps he has no choice. “I’d rather be wrong than negative,” he said.
The millions of businesses that DHL serves around the world may prefer a dose of realism instead.
Tariffs timeline
January 20: In Trump’s inaugural address, he promises to “tariff and tax foreign countries to enrich our citizens.” He announces 25% tariffs on Canada and Mexico starting on 1 Feb
February 1: Trump signs an executive order to impose tariffs on imports from Mexico, Canada and China — 10% on all imports from China and 25% on imports from Mexico and Canada starting February 4.
February 3: Trump agrees to a 30-day pause on Canada and Mexico tariffs, citing progress on drug trafficking and border control
February 4: Trump’s new 10% tariffs on all Chinese imports to the US still go into effect. China retaliates the same day by announcing a flurry of countermeasures
February 10: Trump announces plans to hike steel and aluminium tariffs. He removes the exemptions from his 2018 tariffs on steel, meaning that all steel imports will be taxed at a minimum of 25%, and also raises his 2018 aluminium tariffs to 25% from 10% set to go into effect on March 12.
February 13: Trump announces a plan for “reciprocal” tariffs — promising to increase US tariffs to match the tax rates that other countries charge on imports “for purposes of fairness”.
March 4: Trump’s 25% tariffs on imports from Canada and Mexico go into effect, though he limits the levy to 10% on Canadian energy. He also doubles the tariff on all Chinese imports to 20%.
March 5: Canada, Mexico and China promise retaliatory measures. Trump grants a one-month exemption on his new tariffs impacting goods from Mexico and Canada for US carmakers
March 6: Trump postpones 25% tariffs on many imports from Mexico and some imports from Canada for a month.
March 10: China retaliates against Trump’s tariffs by imposing additional 15% taxes on key American farm products, including chicken, pork, soybeans and beef. Ontario president announces 25% hike in electricity exported to the US.
March 11: Trump threatens to increase steel and aluminium tariffs from 25% to 50% before both sides back down
March 12: Trump import tariffs on steel and aluminium come into force. EU takes retaliatory action with new duties hitting textiles, home appliances, motorcycles, bourbon and peanut butter. Canada’s finance minister Dominic LeBlanc threatens to tax an additional C$29.8bn of American goods.
March 13: Trump announces plans for a 200% tariff on alcohol from France and other European nations in response to the EU levies
