Mexico Joins US Effort to Build Tariff Wall Against China

Before diving into the new tariffs announced by Mexico targeting China, let’s take a look at the broader global landscape. Where do things stand today? Below are the key highlights from the trade Memorandums of Understanding (MOUs) recently reached by the Donald Trump administration with select countries:

Conversations are still ongoing for a long-term plan with Mexico, Canada, China, and India. 

On Sept. 9, as part of the 2026 federal budget proposal, Mexico President Claudia Sheinbaum submitted a budget proposal that would impose additional tariffs (ranging from 10% to 50%) on over 1,400 HTS codes affecting products in the automotive, steel, textiles/apparel, shoes/footwear, electronics, plastics, toys, and home appliances industries, targeting imports from countries that don’t have a Trade Agreement with Mexico. 

Many say the main target is China (which will be affected the most) as the United States has been pressuring Mexico to present a united front against China.  This is taking place amid the preparation for the review of the North American Trade Agreement (Mexico, United States, and Canada), known as USMCA, in late September or early October. 

• The Mexico government is stating these as the reason for this significant shift: 
• To strengthen domestic production and consumption
• To protect local industries and jobs 
• To reduce trade deficits
• To raise revenue, which is expected to be US$3.8 billion

Even though this is only an announcement so far, Congress still needs to approve these tariffs, which is not expected to be an issue since the political party of the president controls the House of Representatives and the Senate with an ample margin. No date has been communicated yet, but there is speculation that these tariffs would be effective Jan. 1, 2026, since they are tied to the 2026 budget.

Upon further analysis of the HTS codes being affected, here is a summary table:

As we can see in the table, judging by the dollar amount of Mexico's imports in 2024, machinery and electrical equipment seem to be the most affected group of products, followed by transportation products, which include automobiles.

This announcement marks a significant shift in Mexico's international trade policy, which has been characterized by foreign trade openness. Mexico has trade agreements with 50 countries through 13 major agreements, including USMCA, the European Union, and the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership).

Here are some numbers behind the automotive industry as a window to help us understand the reasoning and impact of these tariffs. According to the Ministry of Economy in Mexico, between 1999 and 2025, when the government started tracking this number, foreign companies invested US$52.6 billion in the production of automobiles and trucks. We know the actual number is much greater than that since the automotive industry has been in Mexico since the early 1960s and could speculate that the total amount could be $150 billion-plus, just extrapolating the six decades of existence of the automotive industry in Mexico. It is reported by INEGI (the official government agency of Mexico in charge of statistics and geography) that close to 1 million people are employed by the automotive industry in Mexico, directly linked to manufacturing. According to INEGI, Mexico produced 3.98 million light vehicles in 2024 while exporting 3.48 million, mainly to the United States. According to INEGI, 1.5 million light vehicles were sold domestically in Mexico in 2024, which implies that 500,000 light vehicles were manufactured and sold domestically, while the remaining 1 million light vehicles were imported. Given these numbers, in the oldest, biggest, and most developed industry in Mexico, it is not difficult to understand why imposing 50% tariffs on imports makes sense.

Once these tariffs are enacted, Mexico will have officially sided with its biggest trading partner and the world's largest economy: the United States. 

What does this mean for Mexico? 

First, since the USMCA is scheduled for a review with a high probability of turning into a full renegotiation, given the recent events related to tariffs imposed by the Trump administration on countries around the world, this move will definitely give Mexico some leeway. We have seen how Canada has traveled a bumpy road while negotiating tariffs with the United States in the last several months, mainly fueled by some Canadian political actors who turned the tariffs into a political contest. If we contrast this with the much more pragmatic position of the president of Mexico, we can see that her position has allowed her to navigate these choppy waters much better.

Another benefit is that these tariffs, if they stay long-term, will be a big incentive for foreign companies in the affected industries, particularly those from China, to invest in Mexico. This would boost foreign direct investment and the creation of more manufacturing jobs, which leads straight to prosperity.

Just as a reminder, Mexico holds clear advantages compared to other countries:

• Geography: 2,000 miles of shared border with the United States and 48 land border crossings
• Demography: Skilled, educated, and young workforce
• Mature industries like automotive, electronics, aerospace, medical devices, and appliances.
• Education levels: 49.3% basic education (K-9), 24% high school, 21.6% college degree
• Over 220,000 STEM graduates every year (26% of the total)
• Average age is 29 years (vs 38 in China and 38 in the United States)
• Lower labor Cost: Average monthly labor cost: USD $480 vs $840 in China and $2,790 in the United States
• Transportation: Shipping Durango, Mexico, to Denver costs about US$6,000 versus about US$9,000 from China
• Cashflow: Not having 30-45 days of inventory in transit relieves cash
• Direct access to the biggest economy on the planet
• Robust business environment: Strong IP and legal protections
• Cultural affinity and smoother integration with the US market
• Better positioned for resilience, reliability, and sustainability
• Faster time-to-market, and the ability to redesign distribution strategies

New tariffs advantages: 

• Products from Mexico enter the United States at 0% tariffs under USMCA 
• Competing Chinese products face up to 50% tariff 
• Mexico can source steel, aluminum, and copper directly from the United States, avoiding the 50% tariff.

My take:

I remain very bullish on Mexico. Once the current fog in global trade clears — likely by the end of 2025 — we’ll see a second wave of manufacturing nearshoring knocking on Mexico’s doors in 2026.

Buckle up, the next chapter of FDI is about to begin!