China Trade Faces Another Threat

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The world seems to be lining up against China. Mexico has joined the United States and the European Union with plans to place tariffs on Chinese-made products.

Doubtless, pressure from Washington has played a role in Mexico City’s decision, but there is also a big desire among Mexican political leaders and businesspeople to defend domestic industries. Whatever Mexico’s motivation, the decision is significant. Not only does the country have a sizable economy of its own, but it has also served as a conduit through which Chinese producers have avoided U.S. tariffs by entering the United States through Mexico. It is enough of an event for Beijing to show concern.

Mexico City’s announcement of the tariffs did not single out China. It spoke only of raising tariffs on countries without explicit trade agreements with Mexico. That broader category includes China, and as if to sharpen the point, the official statement mentioned the need to “bolster domestic industry and substitute imports from Asia.”

Mexico’s tariff plan is part of the 2026 budget proposal recently submitted to the Mexican Congress, and according to Mexico’s Economics Ministry, it will affect some 1,500 products, amounting to the equivalent of some $52 billion of imports. Mexican officials expect no trouble from the World Trade Organization (WTO). The proposed tariffs are within the organization’s allowed caps for such levies.

Affected imports will include autos, auto parts, steel, textiles, toys, home appliances, and footwear, all of which are part of the array of goods being shipped from China to Mexico. Chinese-made cars are of special significance. According to Mexican Economy Secretary Marcelo Ebrard, Chinese-made vehicles amount to a fifth of new car sales in Mexico. The domestic Mexican auto industry accounts for one-quarter of all Mexican manufacturing and requires protection from Chinese competition. In general, Ebrard said, the tariffs will protect as many as 320,000 industrial jobs.

Mexico’s action would get Beijing’s attention in its own right, but U.S. considerations loom large for both the Mexicans and the Chinese. Mexican Finance Minister Edgar Amador has stated openly that the new tariff proposals aim, in part, at ongoing trade negotiations with Canada and the United States.

Mexico has, in the past, served as a way for Chinese goods to enter the United States free from the tariffs Washington has placed on direct Chinese imports. Chinese producers send finished and semi-finished goods to Mexico. They then enter the United States as Mexican products. Many Chinese companies have set up operations in Mexico for just this purpose. Washington has threatened Mexico with levies for cooperation with such arrangements. No doubt, Mexican officials view the proposed tariffs as a way to soften Washington’s stance on this matter.

This Washington connection has made the matter that much more important to Beijing, which has issued a formal warning to Mexico City, effectively demanding that it reconsider the tariff proposal. Labeling Washington’s tariffs as a form of “unilateral bullying,” it has characterized the Mexican tariffs as “due to coercion.” Accordingly, Beijing has threatened retaliation should Mexico include the proposed tariffs in its 2026 budget. To date, Beijing has kept the nature of such retaliation vague, but it can hardly just stand by if Mexico goes ahead with this plan. Such passivity would encourage the United States to pressure other countries on China trade and would also encourage other countries to comply.

Because Mexico has a genuine interest in protecting its domestic manufacturing industry and places greater importance on the United States than on China, the tariff proposals are likely to be passed into Mexican law. They will no doubt win favor in the Trump White House. And they will force Beijing to respond. While Beijing has remained coy about the nature of that response, it will likely involve cutbacks in the flow of investment monies from China to Mexico, levies on what China imports from Mexico, and other administrative barriers to discomfort Mexican producers dealing with China. Beijing’s response, whatever its specifics, will aim less to change Mexico after the fact than to warn other countries.