China urges Mexico to ‘think twice’ on tariffs, warns countermeasures

China’s Ministry of Commerce has issued a warning to Mexico regarding its plans to increase tariffs on Asian-made cars to 50%. The ministry emphasized the importance of maintaining strong trade partnerships between the two countries and urged Mexico to reconsider its decision before implementing the higher tariffs.

Mexico’s Secretary of Economy, Marcelo Ebrard, announced the plan to raise tariffs on vehicles from Asia, particularly China, from the current 20% to 50%. This move is part of a broader federal budget proposal that aims to impact $52 billion worth of imports into Mexico. However, the increased duties still require Congressional approval and would take effect 30 days after approval.

In response to Mexico’s proposed tariffs, China stated that it would take necessary measures to protect its legitimate rights and interests. The ongoing trade tensions with the U.S. have led to China imposing restrictions on exports of minerals crucial for the production of cars and advanced technology, as Chinese companies dominate the supply chain for these minerals.

Mexico, benefiting from the United States-Mexico-Canada Agreement (USMCA) for tariff-free trade among the countries, faces challenges due to the agreement’s requirements for a higher portion of a vehicle to be made within the region compared to the previous North American Free Trade Agreement.

The Mexican auto industry, the country’s largest employer, could be significantly affected by the proposed tariffs. Despite the potential impact, China has heavily invested in Mexico’s auto sector, with more than 20 Chinese auto parts and manufacturers announcing over $7 billion in investments in the country between June 2022 and July 2024.

It is important to note that China’s presence in Mexico’s car market primarily affects other Asian brands rather than Western brands. Even with the possibility of increased tariffs, the value proposition of Chinese cars remains strong, according to Eugene Hsiao, Macquarie Capital’s head of China equity strategy.

Overall, the trade tensions between China and Mexico highlight the complexities of global trade relationships and the need for careful consideration when implementing tariff policies. It is crucial for both countries to find a balance that supports economic cooperation while protecting their respective interests.