[This article was produced with data from Harvard Growth Lab and the assistance of Perplexity, Claude, and ChatGPT.]

In December 2025, Mexico’s Congress approved reforms to its tariff schedule that raise import duties on about 1,463 tariff lines covering everything from auto parts to toys, textiles, and metals from countries with which Mexico does not have a free trade agreement (FTA), notably China, India, South Korea, Thailand, Indonesia, South Africa, and the United Arab Emirates (UAE). Most affected lines now face duties in the 5% to 35% range, with those on strategic products like automobiles going up to 50%. These new tariffs, effective January 1, 2026, mark a decisive shift away from the temporary tariff safeguards implemented in April 2024.

Mexico’s new tariffs cover autos and auto parts, steel and aluminum, textiles and apparel, footwear, plastics, toys, furniture, household appliances, and other consumer goods. While the Mexican government says the reform is part of an industrial policy to protect and deepen domestic manufacturing capacity, officials also highlight fiscal and macroeconomic aims. The Finance ministry estimates additional annual revenue of about MXN52 billion (roughly US$2.9 billion),¹ and policymakers argue that higher tariffs will curb import surges from Asia that they see as undercutting local producers. Politically, the bill also aligns Mexico more closely with heightened US restrictions on Chinese goods ahead of the 2026 United States-Mexico-Canada Agreement (USMCA) joint review, signaling responsiveness to Washington’s concerns about Chinese “backdoor” access via Mexico.

Drawing on data from the International Monetary Fund (IMF) and Harvard Growth Lab, the figures below offer a profile of Mexico’s trade with key partners and the likely tariff implications for China and Mexico’s other non-FTA suppliers.

Figure 1 – Mexico’s trade balance with key trade partners, 2016 - 2024

Source: International Monetary Fund (IMF)

Mexican trade is extremely vulnerable to fluctuations in US trade policies given its deep reliance on the US market (the US accounts for nearly 80% of Mexico’s exports). Moreover, its trade surplus with the US has expanded markedly, rising from approximately US$112 billion in 2016 to about US$236 billion by 2024 (Figure 1), a trajectory that has heightened concerns in the Trump administration and prompted increased US tariffs. This enormous trade surplus against the US contrasts with Mexico’s other major trading partners such as Canada (US$5.1 billion surplus) and Guatemala (US$2.1 billion surplus).

Yet, Mexico’s exports to its North American neighbors rely heavily on imports from Asian manufacturing hubs and Europe, resulting in widening trade deficits. Its trade deficit with China is its largest and has deepened significantly, reaching US$127.3 billion in 2024 from US$62.3 billion in 2016. The deficit with the European Union (EU) is the second-largest at US$48.3 billion in 2024, followed by South Korea at US$18.2 billion.

Figure 2 – Mexico’s key import partners by country and region (2023)

Total value: US$566 billion

Source: Growth Lab at Harvard University, the Atlas of Economic Complexity. Chart by Perplexity.

Aside from the US, Mexico’s top sources for imports are China, Germany, South Korea, and Japan (Figure 2). These countries supply intermediate goods such as auto parts, electronics components, machinery, steel, and chemicals, feeding into export-oriented assembly in sectors like automotive and electronics. With the implementation of the new Mexican tariffs, countries such as China, South Korea, and India, which do not have FTAs with Mexico, will see their exports face a significant price disadvantage.

50% tariffs on automotives

Mexico’s automotive imports total approximately US$64 billion annually, with China and India representing the most exposed non-FTA partners. China, with automotive exports to Mexico valued at US$10.7 billion, stands to be the most significantly affected by steep duties up to 50%, followed by India at US$1.7 billion (Figure 3). As Mexico is China’s second-largest export market and India’s third-largest market for passenger vehicles, its strategic importance in their export portfolios cannot be undermined.

Figure 3 – Major partners for Mexico’s automotive imports (2023)

Total value: US$64 billion

Source: Growth Lab at Harvard University, the Atlas of Economic Complexity. Chart by Perplexity.

Notably, electric vehicles (EVs), which were previously taxed at a lower rate of 15%–20%, will see their import tariffs increase to 50%.² This escalation is likely to incentivize affected manufacturers to either localize production within Mexico or in its FTA partners such as the US, Japan, and the UK. The move emphasizes Mexico’s strategic protectionist approach and serves as a geopolitical signal of its alignment with USMCA partners, especially amid pressure from the Trump administration, which has labelled the agreement as “irrelevant.”³

35% tariffs on certain textiles

The recent increase in tariffs on all textiles and certain footwear inputs up to 35% (Mexico’s maximum bound rate) marks an increasing protectionist turn in Mexico’s trade policy, effectively eliminating lower tariff rates that previously applied to these categories. Previously, the government had implemented a two-tiered hike, raising tariffs on certain textile inputs to 15% and on finished textile goods to 35% until April 2026. It also further tightened the Manufacturing, Maquiladora and Export Services Industry (IMMEX) program which allowed manufacturers to import certain raw materials duty-free by adding more products to an exclusion list in the decree issued in August 2025. The latest round of tariff hikes further discourages the import of intermediate inputs, pushing manufacturers to source materials locally. Textile inputs previously facing low or no tariffs now face prohibitively high duties in the range of 25%–35%. These increases, coupled with IMMEX restrictions, have further eroded cost savings derived from imports.

Figure 4 – Major partners for Mexico’s textiles imports (2023)

Total value: US$23 billion

Source: Growth Lab at Harvard University, the Atlas of Economic Complexity. Chart by Perplexity.

With new tariff hikes in place for textile inputs, textiles exporters in China, Bangladesh, India, and Indonesia will face tougher export conditions in Mexico. China is Mexico’s largest supplier of textiles, which has more than doubled in value from US$3.9 billion in 2013 to US$8.8 billion in 2023 (Figure 4) but, globally, Mexico accounts for less than 2% of its overall textile exports, mitigating impacts on revenue. With a deeper reliance on Chinese inputs, Mexican manufacturers and resellers may find themselves in just as tough a spot if domestic industries cannot scale quickly enough to replace imports.

Implications for China and other non-FTA suppliers

Mexico’s recent tariff increases on imports from China and other non-FTA partners are poised to significantly impact the costs of intermediate goods. These higher input costs could disproportionately affect smaller firms that have traditionally relied on competitively priced Asian imports to maintain their margins.

While Mexico’s revised tariff schedule remains within its established World Trade Organization (WTO) bound rates,⁴ such unilateral tariff hikes carry the risk of provoking retaliatory trade actions. Major affected countries, including China and India, have already voiced strong objections.⁵ ⁶ Notably, recent amendments to China’s Foreign Trade Law empower Chinese authorities to take “necessary measures” in response to foreign trade restrictions, potentially escalating trade tensions.

While Chinese trade and investment flows to Mexico have accelerated since the US-China tariff war, with annual foreign direct investment (FDI) peaking at US$710 million in 2024, Mexico's increasingly protectionist trade policies and uncertainty surrounding the USMCA review outcomes could dampen investment sentiment. Chinese FDI into Mexico has dropped by 35% as of the third quarter of 2025 compared to the previous year.⁷

Absent the stability that an FTA with Mexico would provide, some Chinese firms may opt to deepen their nearshoring strategies — expanding greenfield investments or forming joint ventures within Mexico — to ensure their products qualify as Mexican and thereby avoid higher tariffs. Alternatively, these firms could also double down on production in countries that have trade agreements with Mexico, including Malaysia, Vietnam, and Brazil, to obtain tariff concessions.

Other non-FTA suppliers including India, South Korea, Thailand, and Indonesia will also face steeper tariff barriers on key exports like steel, textiles, chemicals, and vehicles. These countries are likely to reevaluate their commercial approaches, potentially seeking bilateral negotiations or pursuing new preferential trade arrangements (PTAs) with Mexico to mitigate adverse impacts. India has already proposed a PTA with Mexico to help its exporters deal with the tariff hikes.⁸ In some cases, exporters may pivot toward other Latin American markets or increase direct investment in Mexico to preserve market access.