^{Photo: Bloomberg.com}

Rising Trade Tensions Over Auto Tariffs

China has issued a stern warning to Mexico after the country revealed plans to raise tariffs on vehicles imported from Asia — especially Chinese-made cars — from the current 20% to 50%. Beijing’s Ministry of Commerce urged Mexico to “think twice” before moving forward, warning that any decision to impose steep new duties could trigger Chinese countermeasures.

“China and Mexico are important trade partners. We are not willing to see both sides’ economic cooperation affected by this situation,” the ministry said, cautioning that China would “take necessary measures to resolutely safeguard its legitimate rights and interests.”

Mexico’s Plan to Protect Its Auto Industry

Mexico’s Secretary of Economy, Marcelo Ebrard, confirmed that the proposed tariff hike is part of a broader federal budget plan that would affect more than $52 billion worth of imports. If approved by Congress, the new duties would take effect 30 days later.

Mexico’s auto industry is the country’s largest private employer, supporting over one million direct jobs and millions more indirectly. The government argues that a flood of cheaper Chinese cars is undercutting local manufacturers and threatening Mexico’s compliance with the United States-Mexico-Canada Agreement (USMCA), which requires stricter rules of origin than the older NAFTA pact.

USMCA rules mandate that 75% of a vehicle’s content must be made in North America to qualify for zero tariffs. Many Chinese-made cars shipped to Mexico fall far short of that threshold, often containing less than 30% regional content.

China’s Sharp Response and Broader Strategy

China’s Ministry of Commerce accused Mexico of risking “third-party harm” by succumbing to “U.S. abuse of tariffs” and urged all nations to “safeguard free trade.” Beijing has previously used its control over critical mineral exports — such as rare earths and graphite — to retaliate against countries imposing restrictions on Chinese goods.

Trade analysts warn that China could target Mexican exports or investments if the tariff hike goes through. Between mid-2022 and mid-2024, over 20 Chinese auto parts suppliers and electric vehicle manufacturers announced more than $7 billion in planned investments in Mexico. Many of those projects are still under construction, including a long-anticipated factory by Chinese EV giant BYD that has yet to break ground.

Global Context: Other Countries Also Raising Barriers

Mexico would not be alone in tightening its stance on Chinese cars. Russia currently imposes 60% tariffs on Chinese vehicles, while Brazil recently raised duties on imported electric cars to 35%. Despite this, China has not leveled similar accusations of “coercion” against those countries, leading analysts to suggest that Beijing sees Mexico’s move as particularly threatening due to its proximity to the U.S. market.

Mexico has become China’s top destination for car exports, according to data from the China Passenger Car Association. Chinese brands have been rapidly gaining market share there, often taking sales away from other Asian automakers rather than Western ones. In 2023 alone, Chinese automakers shipped over 330,000 vehicles to Mexico, up more than 50% from the year before.

What Happens Next

Mexico’s tariff plan still requires legislative approval, and analysts believe the government is under intense pressure from both the domestic auto industry and U.S. trade officials to slow the influx of low-cost Chinese vehicles.

Even with the proposed 50% tariff, some experts argue Chinese brands may remain competitive. “The value proposition for many of these Chinese cars remains intact, even with higher tariffs,” said Eugene Hsiao, head of China equity strategy at Macquarie Capital.

If Mexico moves ahead, the decision could reshape North America’s auto market — and ignite a new front in global trade tensions, with China poised to defend its dominant position in electric vehicles and auto parts.