Mexico to Raise Tariff on Chinese Cars to 50%

US Pressures Mexico to Close Chinese ‘Backdoor’ to USMCA

Mexico announced a plan to raise import tariffs on automobiles and other goods from countries without free-trade agreements (notably China) to the maximum WTO-allowed levels. The measures—affecting about $52 billion of imports and intended to protect roughly 325,000 manufacturing jobs—include hefty levies on cars (from 20% up to the maximum), steel (35%), toys, motorcycles, and textiles (10–50%). The government says the move is to shield local jobs and industry; analysts view it partly as a response to U.S. pressure to limit China’s influence in the region. The plan still requires congressional approval and has provoked firm opposition from China.

The move is a direct attempt by the US to push countries in Latin America to limit economic ties with China. In short, the US does not want China to use Mexico as a backdoor into its market. In the last decade, trade deficit between Mexico and China has doubled and last year it was $120 Billion USD.

Key points

• Tariffs targeting imports from countries without trade deals with Mexico (e.g., China, South Korea, India, Indonesia, Russia, Thailand, Turkey) affect about $52 billion in goods or 8.6% of imports.
• Automotive tariffs raised to the maximum WTO-allowed level (Chinese cars currently taxed at 20%); other sectors see 10–50% levies.
• Government says aim is to protect 325,000 industrial jobs and prevent below-cost imports; analysts say move also seeks to placate U.S. concerns about China.
• Plan needs congressional approval; China condemned the restrictions as coercive.
• Mexico will do whatever it can to protect its industrial policy that has gained from the free trade agreement between the US and Canada. It has been careful and so far has avoided the brunt of US tariffs thanks to the current government.

Reactions and implications

Domestic industry and labor groups generally welcomed the proposal, saying higher tariffs could give Mexican manufacturers breathing room to compete and encourage investment in local production. The Confederation of Industrial Chambers (CONCAMIN) noted that protecting strategic sectors could help preserve supply chains and foster higher-value manufacturing in Mexico.

However, some business associations and multinationals warned that the tariffs could raise costs for consumers and for manufacturers that rely on imported inputs, potentially undermining competitiveness. Auto industry groups pointed to Mexico’s deep integration with U.S. and Canadian supply chains under the USMCA, saying that indiscriminate increases on finished vehicles and parts risked disrupting production, slowing exports, and prompting legal challenges at domestic and international levels.

Political reaction was mixed. Opposition parties argued the move would hurt consumers through higher prices and urged targeted measures instead of broad tariffs. The ruling administration defended the plan as part of a broader industrial policy to boost domestic capacity and reduce vulnerability to unfair trade practices.

International response

China’s foreign ministry criticized the proposal as a protectionist measure that harms bilateral trade and investment. Beijing warned it would consider “necessary measures” to defend the rights of Chinese companies, leaving open the possibility of retaliation or legal action through the World Trade Organization.

The United States and Canada —  U.S. officials are watching closely given their own efforts to reduce reliance on Chinese-made goods and to encourage nearshoring to the Americas. Some analysts say Mexico’s announcement may be intended to signal alignment with U.S. priorities while asserting greater autonomy in trade policy.

How Mexico Became a Hub for Chinese Cars

Chinese electric-vehicle makers, blocked by U.S. tariffs, have targeted Mexico as a major export and production hub. China became Mexico’s top car supplier last year, exporting $4.6 billion in vehicles, and companies like BYD sell much cheaper EVs than Tesla. Chinese firms are exploring factories in Mexican states, promising jobs and investment, but U.S. officials fear this could be a “backdoor” to the U.S. market by using USMCA rules to avoid tariffs. The situation puts Mexico in a difficult spot balancing U.S. relations and attractive foreign investment, while U.S. leaders consider protections for their fledgling EV industry.

Key points

• China was Mexico’s leading car supplier last year with $4.6 billion in exports; Chinese EVs are competitively priced (e.g., BYD Dolphin Mini ≈ $21,300).
• Chinese automakers are pursuing production sites in Mexican states (Durango, Jalisco, Nuevo León), promising jobs and economic boost.
• S. officials worry companies could use Mexico and USMCA rules to circumvent U.S. tariffs and access the U.S. market duty-free.
• The issue creates political tension: protecting U.S. EV industry versus Mexico’s interest in foreign investment and trade ties.

Likely Demand Hit on Chinese Electric Vehicles (EVs)

Mexico plans tariffs of up to 50% on vehicle imports from China, but Chinese automakers — led by low-cost EV makers like BYD — may remain competitive due to lower production costs and efficient supply chains. China is already Mexico’s top car exporter, and while tariffs could slow imports and reduce demand, they are unlikely to eliminate the established presence of Chinese brands.

Key points

• Proposed tariffs (up to 50%) target all cars from China, not just EVs, and aim to curb rising imports.
• Chinese EVs (e.g., BYD’s Dolphin Mini ~399,800 pesos) are much cheaper than many legacy-brand EVs in Mexico (e.g., GM Equinox ~876,990 pesos), keeping them attractive to buyers.
• China shipped about 280,100 vehicles to Mexico in H1 2025 (up 24% YoY); Mexico is now the top destination for Chinese cars.
• Geopolitical tensions stalled BYD’s plan for a Mexican plant, but domestic Chinese cost advantages allow continued competitive exports.
• Tariffs may slow the influx but are unlikely to fully reverse the growing market presence and dealership networks already established in Mexico.

The largest export for Chinese car exports are: Mexico (280,000), UAE (229,000), Russia (180,000), Brazil (151,000) and Belgium (149,000) according to the China Passenger Car Association for the first 6 months of 2025. In Europe, Chinese EV fell due to the ani-subsidy investigation and tariffs, but Chinese share of EU EV market recently hit 10%. In Mexico, the 50% tariffs are on all Chinese cars including EV models. Thus, imports are expected to fall more than the EU especially since Mexicans have a lower consumer spending power.

Potential impacts and likely responses

• Consumer prices and demand: If implemented, tariffs of up to 50% would raise retail prices for imported Chinese vehicles, narrowing some of the current price gap with legacy and Mexican-produced models. That could dampen demand, especially among more price-sensitive buyers. However, given the sizable initial cost differential and the fact that many Chinese models are positioned well below incumbent brands, a portion of their market appeal would remain. Dealers may also absorb some tariff costs temporarily or lean more heavily on financing incentives to keep retail prices attractive.
• Model mix and segmentation: Tariffs could encourage Chinese firms to emphasize higher-margin models or trim levels that can better withstand added duties, while lower-margin subcompact offerings might be withdrawn or repriced out of reach for target buyers. Premium features that Chinese brands increasingly offer (advanced infotainment, ADAS, long-range battery options) could sustain consumer interest even with higher prices.
• Supply chain and nearshoring strategies: A steep tariff would increase the incentive for Chinese automakers (or their suppliers) to localize production in Mexico or partner with Mexican OEMs to avoid duties. While BYD’s Mexico plant plan stalled amid political pushback, other manufacturers might explore joint ventures, contract manufacturing, or staged investments in assembly to circumvent tariffs. Mexican suppliers could win business from such shifts, boosting local employment and content.
• Competitive reactions from other automakers: Established automakers with Mexican production footprints could leverage tariffs to regain pricing parity or push models marketed as “made in Mexico” to gain share. They may also accelerate EV and hybrid launches at lower price points to compete with Chinese offerings. Conversely, some global brands might selectively lower prices or increase incentives to protect volume in the entry-level and compact EV segments.
• Government and trade fallout: Mexico’s tariff move would likely trigger diplomatic discussion with China and scrutiny under WTO rules; Beijing could retaliate with trade measures affecting other sectors. Mexico will balance political objectives (protecting domestic industry and responding to public pressure) against risks to investment and broader bilateral trade relations.

Political and diplomatic dynamics

• Mexico’s balancing act: Mexican leaders face pressure to attract investment and create jobs while managing relations with the U.S. Any move perceived as undermining U.S. industry could provoke diplomatic friction or trade countermeasures. Mexico may seek assurances or negotiate terms that protect both its sovereignty to attract investment and its key partnership with the U.S.
• U.S. domestic politics: Protecting the nascent U.S. EV sector has bipartisan interest in regions where EV plants could create jobs. Lawmakers may push for stricter rules or enforcement, especially if Chinese-branded vehicles gain visible market share in North America.
• China’s strategy: Expanding production in Mexico offers Chinese companies a way to access large markets without facing direct import tariffs. It also diversifies their manufacturing footprint and strengthens global brands.

Bottom line

Tariffs could blunt the rapid rise of Chinese car imports into Mexico and protect local industry in the short term, but they are unlikely to erase the competitive advantages — low-cost manufacturing, efficient supply chains, and aggressive product strategies — that underpin China’s automotive expansion. Expect adaptation: price adjustments, model withdrawals, and increased localization efforts rather than a wholesale retreat of Chinese brands from the Mexican market.