Mexico First: How Mexico Plans To Weather Trump’s Tariffs

Put yourself in the shoes of an average Mexico City resident and imagine a day without Chinese products. You wake up without socks or underwear. Your cell phone is missing key electronic parts, or it might be missing altogether, but it doesn’t matter because cell-phone antennas have vanished, too. You try to get to work but can’t find the electric Metrobuses or trolleys, all of the once-ubiquitous electric motor-scooters and electric cars have disappeared, and several Metro lines are down.

After the United States, China is Mexico’s largest source of imported products, including everything from electric cars to clothing and electronics. The countries’ economies have long been stiff competitors — both have large manufacturing sectors — but in recent years, Mexico has seen an increase in both investment and the flow of goods from China. The U.S. government has been keeping an eye on their growing relationship.

In 2023, Janet Yellen, the treasury secretary under President Joe Biden, signed an agreement to form a bilateral working group to scrutinize foreign investment in Mexico, “so that these investments do not generate security concerns for Mexico or the U.S.,” she told the press. And now, in support of his ongoing trade war, President Donald Trump has raised fears that Mexico will serve as a “back door” for finished Chinese products to enter the U.S. without paying his hefty tariffs.

Mexico, meanwhile, is proposing its own plan to reduce reliance on Chinese imports and boost its manufacturing power.

The same week that Trump took office, Mexican president Claudia Sheinbaum announced Plan México, an industrialization program that seeks to substitute Chinese components, such as semiconductors, with Mexican-made products. The program aims to streamline the process for companies to relocate to Mexico. It also will build new industrial parks in special economic zones and continue investment in infrastructure megaprojects like former President Andrés Manuel López Obrador’s Trans-Isthmus Corridor, a train line being built across the 200-mile-wide Isthmus of Tehuantepec.

The finished goods that China sends to Mexico typically stay there; they are products that neither the U.S. nor Mexico produce, like electric motor-scooters and buses. Since the pandemic, Chinese imports to Mexico have grown by 12.9% annually. That increase in demand is partly because people in the U.S. are buying more things that require Chinese-made raw materials and components. (Some economists attribute this to people replacing services with products, like buying a treadmill instead of paying for a gym membership.) When Chinese imports cross from Mexico into the U.S., they usually do so as part of other goods, often ones made by U.S.-owned companies.

U.S. factories have operated in Mexico since the 1960s under the maquiladora program, which allows companies from the U.S. to produce more cheaply in Mexico, and today, most exporters in Mexico are U.S.-owned companies. This means that U.S. tariffs on imports from Mexico would likely prove counterproductive by reducing U.S. competitiveness with China, policy analyst Victor Aramburu said in an interview.

It wouldn’t be Sheinbaum’s Mexico paying Trump’s tariffs; it would be General Motors, Ford and IBM.

“I don’t think that [the administration] is thinking about everything that the tariff situation represents for the United States,” said Humberto Martínez, the president of the National Council of the Maquiladora and Manufacturing Exportation Industry (INDEX). When it comes to electric equipment and digital components such as semiconductors, the problem for both the U.S. and Mexico is that they don’t produce the parts that China does, he said.

Martínez said his organization has been working closely with Sheinbaum’s administration on Plan México and notes that she is more involved with the manufacturing sector than her predecessor, López Obrador. “In these 100 days of President Sheinbaum, [INDEX has] had more meetings with the federal government than what we had in the last six years,” he said.

Plan México calls for a threefold increase in foreign direct investment, from $30 billion to $100 billion. It’s yet to be seen whether the money will come from companies in the U.S., China or elsewhere, and Martínez said all investors are welcome to take advantage of the incentives and relocate to Mexico.

In the meantime, the average Mexican isn’t going to see Chinese products stop arriving overnight, but the plan could put 1.5 million Mexican laborers to work replacing them. While the arrival of U.S. or Chinese-owned factories may bring more jobs, there is no guarantee that workers will be offered salaries high enough to afford adequate health care and housing, as factory employment has tended to provide low pay and poor working conditions.

Industrialization in Mexico has also proven detrimental for the environment. In Tijuana, for instance, labor organizer Mago Avalos, of the organization Ollin Calli, has watched industrial parks expand into the nearby town of Rosarito and take over the landscape.

“The deepest impacts are on the working class,” she said, “because of the chemicals that they use, that they dispose of in the rivers, on the land, in the neighborhoods and in the sea.”

Avalos anticipates that any tariffs imposed on Mexico would hurt maquiladora workers first. When production costs go up, companies cut expenses in other areas so that workers take the hit in the form of lower wages or more difficult conditions. A similar situation occurred with recent increases in the minimum wage, which has tripled since 2018. Sheinbaum announced another 12% hike in December, but to keep their costs down, employers find workarounds, Avalos said. Employers often eliminate bonuses to avoid losing money on minimum-wage increases, so workers’ take-home pay doesn’t reflect the new standard.

 “If the cost rises to produce in Mexico, that cost will be the burden of the workers,” she said.