Mexico Emerges as the US’ Most Competitive Trade Partner

Mexico is solidifying its role as the United States’ most competitive trade partner as widening tariff differentials make Chinese goods increasingly costly to import, prompting companies to reconsider global supply-chain strategies.

On average, the United States applies a 9.81% tariff on goods from all origins, while Mexican exports face an effective rate of just 4.18%. For comparison, shipments from Germany incur roughly 9.79%, Vietnam 12.72%, Japan 13.89%, and China up to 30.93%. Over the past year, the cost gap between Mexican and Chinese exports has nearly doubled. At the start of January 2025, Mexican products entering the United States carried tariffs below 1%, while Chinese goods faced a rate of 12.3%.

Mexico’s traditional maquiladora model is losing some of its competitive edge, however, as both Mexico and the US implement unilateral tariffs and tighten USMCA rules of origin. In a report by US consulting firm Foley & Lardner LLP, Alejandro Gómez‑Strozzi, Partner in the International Trade and Transactions practice, and John Turlais, Counsel, warned that companies assuming maquiladora status automatically guarantees duty-free access would likely be disappointed. They added that firms emphasizing compliance, origin planning, and tariff modeling will find Mexico remains the most robust platform in a high-tariff environment.

The report also emphasizes that Mexico’s own tariff policy is increasingly shaping supply-chain economics. Since Jan. 1, Mexico has levied tariffs between 5% and 50% on 1,463 products from countries without trade agreements, including China, South Korea, India, Malaysia, and Thailand. These measures affect imports valued at roughly US$52 billion, equivalent to 8.6% of Mexico’s total foreign purchases.

Foley & Lardner describe a common and costly misconception, calling it the “maquiladora fallacy,” which is the belief that IMMEX companies are exempt from customs duties. While the IMMEX program provides temporary relief on imported inputs, this benefit is limited under the USMCA’s “Lesser of Two” rule. Tariffs on non-USMCA materials cannot exceed the lower of the duty payable in Mexico or the duty that would apply when the finished product enters the United States or Canada.

China-US Dispute

In 2025, the United States applied average tariffs of about 47.5% on Chinese exports, covering 100% of goods entering from China. Beijing responded with average duties of 31.9% on US exports, also extending across the full spectrum of bilateral trade. Since the second Trump administration took office, US tariffs on Chinese products have climbed by 26.8%, compared with a 10.7%  increase in China’s retaliation.

The escalation accelerated in early 2025. By May, average US tariffs on Chinese imports briefly spiked to 127.2% as Washington layered multiple trade actions, some aimed directly at China and others applied across strategic sectors such as steel, aluminum, vehicles, and parts. Initial China-specific hikes of 10% in February and March were followed by broader industrial tariffs in March and April, before a series of April measures added roughly 125% in cumulative increases, albeit with sectoral exemptions.

Diplomacy tempered the surge. After negotiations in Geneva, both sides agreed to replace the April escalation with a flat 10% increase, cutting the average US tariff on Chinese imports from 127.2% to about 51.8%. Subsequent sector actions nudged rates higher again, but further talks in Korea produced additional reductions scheduled for implementation in November.

China’s response followed a similar arc. During its 2025 retaliation, average Chinese tariffs on US imports peaked at 147.6% in mid-April after Beijing expanded coverage from 58.3% of US exports to 100%, introducing an 84% retaliatory rate across all goods. Following the Geneva and Korea meetings, China reduced its average tariff burden on US shipments to 31.9%.

The spillover extends beyond China. Between January and November, the average US tariff on imports from the rest of the world climbed from 3.0% to 18.4%, reflecting Washington’s broader protectionist posture even as it negotiates partial relief with partners in Europe and Asia. Compared with the start of the trade war in 2018, current US tariffs on Chinese imports are now more than 15 times higher, underscoring how structural, rather than temporary, the policy shift has become.

With China increasingly priced out of large segments of the US market, trade is not disappearing, it is relocating. The dispute is accelerating nearshoring by pushing manufacturers to shorten supply chains and reduce tariff exposure. 

China–Mexico Trade Ties Under Geopolitical Strain

Effective January, the country approved a sweeping overhaul of its tariff framework to restrict imports from countries without free trade agreements, including China and several Asian economies. Covering 1,463 tariff lines across 17 sectors, the reform reflects Mexico’s push to protect domestic industry while responding to growing US pressure to curb China’s commercial footprint, highlighting how geopolitical considerations are increasingly shaping trade policy in the region.

China is currently Mexico’s third-largest trading partner, accounting for just over 1.6% of Mexican exports, behind Canada at 3% and the United States at more than 79.6%. In 2024, bilateral trade reached US$139.73 billion, but the relationship remains highly imbalanced. Mexican exports to China totaled US$9.93 billion, compared with US$129.8 billion in imports, leaving a trade deficit of US$119.85 billion in China’s favor, an asymmetry that analysts view as structurally significant.

In 2024, Mexico’s exports to China were led by copper ores and concentrates worth US$2.32 billion, mainly from Sonora, Puebla, and Mexico City, while imports were dominated by telecommunications equipment, totaling US$9.44 billion and concentrated in Mexico City, Chihuahua, and Baja California. Chinese foreign direct investment in Mexico reached US$710 million, with the bulk directed to Mexico City, followed by Campeche and Coahuila.

According to PRODENSA, the Mexico–China trade relationship reflects both competition and complementarity. Mexico remains a key hub for traditional vehicle manufacturing, while China leads in electric vehicles and batteries. In electronics, Chinese components feed Mexico’s assembly operations for the North American market, and renewable energy stands out as a potential growth area. For Chinese firms, Mexico offers a strategic entry point to the USMCA market, but this opportunity is constrained by the new tariffs on Chinese goods, direct competition in sectors such as steel, and strict USMCA rules of origin that require local integration and investment.