Mexico is set to impose higher tariffs on Chinese imports as part of its 2026 budget proposals, in a move that appears carefully calibrated to satisfy demands from the Trump administration whilst addressing domestic economic pressures.

The planned measures, which would target automobiles, textiles and plastics amongst other goods, herald a sweeping change in Mexico's trade stance towards China, its second-largest trading partner. According to Bloomberg, the proposals are expected to be presented to Congress before September 8 as part of President Claudia Sheinbaum's broader "Plan México" industrial strategy.

The timing is particularly telling. With the 2026 review of the United States-Mexico-Canada (USMCA) Agreement looming, Mexico finds itself juggling its relationships with its two most important economic partners. As Gabriela Siller of BASE Financial Group observed, imposing tariffs on China would "clearly be aimed at getting on Trump's good side" ahead of the crucial trade pact negotiations.

President Trump has long railed against what he sees as trade "loopholes" in the USMCA that allow Chinese goods to sneak into the US through Mexico. During his campaign, he warned of imposing punitive tariffs of up to 250% on Chinese cars manufactured in Mexico for export to the United States, declaring they would "never sell one car in this country."

His administration's push for a "Fortress North America" approach to supply chains has ramped up pressure on Mexico to demonstrate its commitment to reducing Chinese influence in regional trade networks. To this end, officials in Washington have long been urging Mexico to take concrete steps to limit what they view as backdoor access for Chinese products into the American market.

The Mexican government's calculus extends beyond Washington's demands, however. Capital Economics notes that Mexico has multiple incentives for restricting Chinese imports: appeasing its northern neighbour, addressing a budget deficit that reached 5.9% of GDP last year—the highest in over three decades—and protecting domestic manufacturers from subsidised competition.

The trade imbalance with China has become increasingly stark. Mexico purchased $129bn in Chinese goods in 2024 whilst exporting just $9.93bn to China, a deficit that President Sheinbaum has explicitly acknowledged needs addressing. "We have to review our tariffs with China," she stated back in April, signalling her government's intent to address the yawning trade gap.

Yet the challenge of curbing Chinese influence appears daunting. Despite the seemingly pro-US rhetoric emanating from Mexico City, Chinese imports continue flooding into Mexico at unprecedented levels. In January and February 2025 alone, Mexico imported $20.6bn in Chinese goods—a historic high according to Bank of Mexico data—demonstrating China's persistent and growing market presence.

Chinese imports to Mexico exceeded $51bn last year, accounting for nearly a fifth of the country's total overseas purchases. Mexico has become the world's top destination for Chinese vehicles, overtaking heavily sanctioned Russia, a development that has left local manufacturers complaining of unfair competition.

Beijing has responded sharply to the proposals. Foreign Ministry spokesman Guo Jiakun stated that China "firmly opposes moves that are taken under coercion to constrain China," adding that economic cooperation between the nations operates on principles of mutual benefit. He expressed confidence that Mexico would "uphold independence and properly handle relevant matters."

The Chinese response underscores the delicate diplomatic balance Mexico must maintain. Guo noted that China serves as Mexico's second-largest trading partner in Latin America whilst Mexico ranks as China's third main export destination, highlighting the mutual dependency that has developed between the two economies.

The proposed tariffs build upon existing measures. Since January, Mexico has introduced levies on low-value parcels from Chinese e-commerce platforms such as Shein and Temu, with rates rising from 19% to 33.5% in July. Current tariffs include duties of up to 20% on Chinese vehicles—far below the 100% slapped by the US and Canada on Chinese electric vehicles—and 35% on many textile products.

According to El Pais, Adolfo Laborde, an international trade specialist at CIDE, offered a blunt assessment of Mexico's position: "Mexico's strategy is clear: disconnect from China and establish closer policies with the US and Canada. The government is closing ranks with the United States despite everything happening to us. We are hostages to Trump's negotiation strategy."

This lays bare the limited room for manoeuvre that Mexico enjoys in the current geopolitical environment. The Sheinbaum administration's flagship "Plan México" explicitly aims to strengthen commercial and industrial ties within North America whilst distancing the country from Asian imports, a strategy that aligns closely with Trump's vision for regional trade.

Capital Economics suggests the implications could extend well beyond Mexico's borders. The research firm notes that Mexico has played a significant role in China's post-pandemic export boom as its 11th largest export market. However, they assess that whilst other emerging markets face similar pressures from Chinese competition, few are likely to follow Mexico's lead given their dependence on Chinese demand for commodities.

"Mexico appeared particularly susceptible to US pressure to put tariffs on China given its dependence on US final demand," Capital Economics observed, noting that Mexico's deep trade ties with America make it a natural target for efforts to prevent Chinese technology from entering North American supply chains.

The measures could create complications for Mexico's own manufacturing sector. China and other Asian nations account for approximately 40% of Mexico's goods imports, many consisting of components essential for supply chains. Capital Economics warns that tariffs could raise input costs, potentially harming Mexico's competitiveness, particularly if extended to self-governing Taiwan, which supplies crucial high-end components for AI servers assembled in Mexico.

The research firm points to Mexico's booming exports of servers, driven by America's AI data centre boom, as one area that could be vulnerable if tariffs are applied too broadly. This highlights the challenge of targeting Chinese imports without disrupting the complex supply chains that underpin Mexico's role as a manufacturing hub for North American markets.

There are also inflationary concerns. Whilst the impact may prove modest, higher import costs could complicate monetary policy at a time when Mexico's central bank is approaching the end of its easing cycle. Capital Economics suggests this could bring rate cuts to an end sooner than currently anticipated.

Jorge Guajardo, Mexico's former ambassador to China and an advocate for higher tariffs, expressed hope that any measures would be "high enough that they protect industry more than they raise revenue," pointing out the delicate balance between protectionism and fiscal necessity.

The proposals also raise questions about consumer impact, particularly in the automotive sector. Chinese brands like BYD and Chirey have gained significant market share in the Central American nation by offering affordable vehicles, including electric models. Higher tariffs would make these cars more expensive, potentially limiting Mexican consumers' access to affordable EVs at a time when the country, particularly under the climate-sensitive Sheinbaum administration, is trying to promote cleaner transportation.

The proposals reflect broader shifts in global trade dynamics as nations reassess their relationships with China. For Mexico, the challenge lies in maintaining its role as a key US manufacturing hub whilst satisfying American concerns about Chinese influence in North American supply chains.

Capital Economics notes that whilst India, with its large manufacturing sector and history of anti-dumping measures against China, might be a candidate to follow Mexico's lead, most Latin American countries are unlikely to impose similar barriers given their reliance on Chinese demand for commodities.

As Congress prepares to debate the budget package over the next months, industries and consumers await clarity on how far Mexico will go in recalibrating its economic relationship with China. The outcome could prove pivotal not only for Mexico's trade balance but for its strategic position in an increasingly fractured global economy.

The Sheinbaum administration now faces the unenviable task of threading the needle between maintaining access to affordable imports, protecting domestic industry, raising revenue for stretched public finances, and—perhaps most crucially—demonstrating sufficient alignment with Washington's strategic objectives to ensure smooth sailing through the USMCA review. How successfully Mexico manages these competing demands could set the template for other nations caught between the world’s two largest economic giants.