Exactly two weeks ago, Mexico put a sudden—and very strategic—break to one of its most notorious trade relationships in recent years. Quietly and without much fanfare, the Mexican government announced a list of increased tariffs targeting countries for which it had no multilateral trade agreement. Quickly, foreign press outlets noticed a key fact of those tariffs: they seemed to be targeted at Chinese exports as the US continuously pressures Mexico on the matter. That, at least, has been the topic of most coverage around the tariffs both at home and abroad.

At Desteia, we decided to take a closer look at these tariffs to uncover the strategies taken by Mexico’s government. In doing so, we noticed something rather surprising. Mexico intentionally targeted Chinese exports of small relevance to trade while also focusing on some strategic raw materials like iron and steel that would inhibit car manufacturing in the country. That is, Mexico is speaking to both sides of the aisle by imposing tariffs on China—thus pleasing the US—and avoiding crucial products—thus pleasing China. But more on this soon.

Let’s start by recognizing the facts. It is certainly true that, in recent years, Chinese exports to Mexico have grown significantly. In 2023 alone, Chinese exports in Mexico reached a surprising value of $113.6 bn, up 55.2% from 2020. For context, US exports to Mexico totaled some $468 bn that same year—the largest trade relationship albeit with a less dramatic growth rate.

Chinese Exports to Mexico (in Billions of USD)

(Data from Mexico's Secretary of Economics)

This growth in Chinese exports was, in great part, a strategic decision from the Chinese government after the Trump administration began a tumultuous tariff war in 2018. Mexico, with its less aggressive stance to China and a comprehensive trade agreement with the US and Canada, became a natural backdoor to a now blocked market. That explains why, in recent months, Chinese companies like BYD announced plans to open factories in Mexico hoping to address the Mexican and Latin American markets, while opening the door to re-enter the US market. Thus Mexico found itself in a cross-road. It was winning from China’s growing interest and increased number of shipping containers, but risked the anger of its largest trade partner.

The US was quick to notice the pattern and recently exerted pressure on Mexican authorities to halt incentives to Chinese firms according to confidential sources by Reuters. That, in turn, explains Mexico’s recent aggressive tariffs against China.

Most outlets have focused on the broad characteristics of Mexico’s recent tariffs which target any country without a standing free trade agreement—a clever way to include China without clear attribution. And granted, a first glance does suggest that the Mexican government was rather aggressive in its approach. Afterall, the tariffs impact 544 different trade categories with taxes that range between 5-50%—numbers that could heavily discourage exports to the country.

Yet, Mexico isn’t just taking the US’ side in the conflict, blocking Chinese trade into the country. The reality of the tariffs is far more complicated and is worth a closer inspection.

To do this, we at Desteia went through all 544 trade categories affected by the recent tariffs and compared them to the official list of exports registered by Mexico’s Secretary of Economics. Given how specific trade categories tend to be, we often found disagreement between the terms used by the Secretary of Economics to categorize exports and the official nomenclature used in the tariffs. However, we still were able to categorize 363 goods as subject to tariffs which we believe encompass almost the entire body of goods impacted.

Our first finding is that the headlines highlighting the 5-50% are showcasing an unrealistic scenario. The vast majority of tariffs imposed by the Mexican government are found in the middle of the distribution—roughly between 30-35%. Tariffs of 5-15% and 45-50% were a rare occurrence, impacting just seven of the 544 trade categories in question.

Spread of Mexican Tariffs Recently Imposed to Chinese Exports

(Data from Mexico's Official Government Newspaper)

We were also able to quantify the impact of the tariffs in question. Put together, the goods targeted by Mexican tariffs represent a total of $16.9 bn of the totality of Chinese exports in 2023, or 16.7% of the total value. Since we also codified the actual tariffs for each category, we were also able to determine the potential earnings Mexico could receive from the tariffs. If China were to continue exporting to Mexico, we estimate that the Mexican government would receive between $5.1 bn and $5.5 bn in tariff revenue—roughly 5.2% of China’s current exports value.

Monetary Value of Chinese Exports Impacted by Mexican Tariffs (2023)

(Data from Mexico's Secretary of Economics and Official Government Newspaper)

Yet the most important finding from a closer inspection is the actual categories the Mexican government chose to target. We can broadly categorize the tariffs on three broad buckets: metals (including a long list of iron and steel products that range from tubes to nails), textiles (including almost every form of fabric or clothing), and furniture. Paper, chemicals, and other commodities were also impacted to a lesser degree.

Crucially, none of these categories have ever accounted for a meaningful share of Chinese exports to Mexico. In fact, none of the top 10 Chinese export categories—which together accounted for 37.7% of all exports in 2023—were subject to tariffs in Mexico’s recent announcement. Not even auto parts—with the exception of wind shields—were subject to tariffs in Mexico’s recent strategy despite being the main source of concern from the US government. 

By looking closer at these tariffs, we noticed Mexico’s true strategy. Instead of targeting the largest trade categories with China—which account for billions of dollars in value—they targeted goods of lesser importance. Some, like metals, screws, nuts, and bolts, go to the heart of the US’ concerns over China opening vehicle manufacturing centers in Mexico. The vast majority, however, seem ill suited to impact China’s strategic interest in Mexico—it’s hard to see how tariffs on paper or chemicals would impact phone and car imports. China can then maintain the bulk of its trade relationship with Mexico while abandoning some smaller categories of products. 

Monetary Value of the Top 10 Chinese Exports to Mexico (2023)

(Data from Mexico's Secretary of Economics)

Mexico then achieved what seemed impossible. It created a set of tariffs that appeases the US without fully abandoning Chinese investment in the country. This, of course, is just the beginning of a complicated trade relationship that is likely to change in months to come. But, for the time being, Mexico can maintain both relationships through strategic decision making.