Dynamic Analysis of the Impact of U.S. Tariff Policies on Automotive Production in Mexico

Background : A system dynamics model was developed to assess how United States (U.S.) tariff policies impact production, exports, labor, and Gross Domestic Product (GDP) in the Mexican automotive sector. Methods : Beginning with a baseline scenario without tariffs, the model introduces increases of up to 25% in exports to the U.S. Additionally, it analyzes a tariff increase alongside variations in demand elasticity (−0.5 to −1.6) over a 24-month period. Results : The results indicate that a 25% tariff leads to a sustained decrease in production, GDP, and exports, although adjustments in employment occur with some delay. Specifically, production volume contracts by 34.9%, and exports contract by 31.3%. Furthermore, a greater absolute elasticity of demand corresponds to a more significant decrease in production. Conclusions : The findings indicate that geographic diversification is not an immediate substitute for the current export structure, as it requires significant logistical, organizational, and capital adjustments. Reducing dependence on the U.S. market would involve reconfiguring supply chain management, diversifying suppliers, and adapting distribution networks to gain greater flexibility. The sector’s vulnerability therefore lies in its high concentration in a single destination market, which restricts production adaptability in Mexico and weakens the capacity to respond efficiently to disruptions in the supply chain.