Trump Threatens 5% Tariff and $12B Bailout for Farmers Amid Tensions with Mexico Over Water Disputes

US President Donald Trump has escalated his standoff with Mexico by threatening a 5% tariff on imports and a $12 billion bailout for American farmers, accusing Mexico of violating decades-old water-sharing obligations under the 1944 US–Mexico Water Treaty.

In a forceful Truth Social post, Trump claimed Mexico's shortfalls were 'seriously hurting' Texas agriculture and warned he is prepared to use economic pressure to force compliance, intensifying a diplomatic row already strained by drought, cross-border water shortages, and rising climate stress.

'Mexico continues to violate our comprehensive Water Treaty, and this violation is seriously hurting our beautiful Texas crops and livestock,' he wrote.

He added that Mexico still has to deliver 800,000 acre-feet of water for failing to comply over the past five years, and needs at least 200,000 acre-feet of water before 31st December.

'As of now, Mexico is not responding, and it is very unfair to our US farmers who deserve this much-needed water,' Trump stated.

'That is why I have authorised documentation to impose a 5% Tariff on Mexico if this water isn't released, IMMEDIATELY.'

The president's demand comes at a time when Mexico is experiencing a severe drought, paralysing grain and cattle production in the Rio Grande Valley.

The International Boundary and Water Commission (IBWC), which oversees the treaties, has estimated that Mexico has fallen short of its obligations by 73,000 acre-feet of water in the last five years.

What's The 1944 US-Mexico Water Treaty All About?

In 1944, the US signed the Utilisation of Waters of the Colorado and Tijuana Rivers and of the Rio Grande Treaty, which has compelled it to permit Mexico to obtain 1.5 million acre-feet of water per year, subject to a minimum flow of 350,000 acre-feet northwards to the US.

The clause has been invoked by both parties in the last few years, with the U.S. claiming that Mexico has failed to maintain a floor of 350,000 acre feet, a breach of contract.

However, Mexican officials point to unprecedented climate pressure, more than three-quarters of Mexico is in a moderate to exceptional drought, according to the 2024 North American Drought Monitor, as an excuse to perform less than it would have done.

Tariff As Trump's Trump Card

The tariffs proposed by Trump of 5% would also increase the duty rates on Mexican goods to 30%, an increase to a country that already contributes about $600B in annual trade with the U.S.

Meanwhile, the United States-Mexico-Canada Agreement (USMCA) protects most of the exports made by Mexico - automobiles, electronics, and agricultural products.

It is set to be reviewed in July. The Trump administration has indicated its readiness to allow the agreement to expire, which could subject Mexican deliveries to higher duties.

However, trade experts warn that the practical effect of the tariff might have minimal effects unless the USMCA is repealed.

Texas Farmers Experiencing The Struggle

Water scarcity is a reality for most Texas ranchers and grain growers, as the state has lost of $1B in irrigated crops over the past two years.

Local agribusinesses are already struggling with high feed costs and labour shortages. They are worried that any further cut in their water supplies would drive marginal farms out of business forever.

The US presented the tariff as a necessary action to defend American farming, stating that the agricultural relief would come from a 'small portion' of the tariff collections.

The tariff threat raises questions about the legality of using trade penalties to enforce treaty compliance.

Over the last few months, Washington and Mexico have been discussing mutual funding for desalination and water recycling, and sharing more of the water from shared rivers, noting that climate strain risk may transform regional security relations.