The Evolving Tariff War and Mexico’s Position
Since the beginning of Donald Trump’s presidency, the ongoing tariff war with several countries has been in a constant state of flux. Much like pieces of a puzzle that change shape, adapting to new demands requires focusing on the core issue to react in time. The recent easing of tensions between the US and China forces other countries, including Mexico, to reassess their positions.
Mexico’s Present Hinges on Nearshoring
During Trump’s first term in 2018, US companies started moving their manufacturing plants from Asia to North America as a response to tariffs on Chinese products. Mexico emerged as the primary beneficiary of this trend, which allowed companies to avoid various cost overruns.
- Geographical proximity to the US
- The Mexico-US-Canada Agreement (T-MEC)
- Competitive, skilled labor in sectors like automotive, electronics, and semiconductors
- Reduced logistical costs, eliminating the need for ocean freight and shortening delivery times
However, Mexico’s appeal is threatened by the recent rapprochement between Trump and China’s Xi Jinping, which could alter the pace of this reconfiguration. If Chinese factories regain privileged access to the US market, some planned investments in Mexico might be delayed.
Postponed Tariffs on Mexico
Mexico’s close relationship with the US is a double-edged sword. The country’s economy is heavily dependent on the US, and social issues (extending beyond the economic) play a delicate role in their alliance.
In July, Trump threatened to impose a 30% tariff on all Mexican products, citing “non-tariff barriers” to trade in exchange for social measures.
However, Mexico’s President Claudia Sheinbaum confirmed that Washington granted another extension to prevent this measure from taking effect beyond November 1st, the original date.
Trump had already imposed a 25% tariff on Mexican imports outside the T-MEC framework, forcing national companies to restructure their processes to comply with treaty norms and dodge tariffs. According to Mexico’s Secretary of Economy, nearly 90% of Mexican exports to the US are protected by the trilateral agreement, reducing room for future trade sanctions. Nevertheless, the tariff threat remains as a political tool.
Trade Agreement and Euphoria in Markets
Beyond the strictly bilateral aspects, Mexico could also be affected by the US-China agreement. Following the announcement, major Wall Street indices (S&P 500, Nasdaq, and Dow Jones) closed at record highs, while the European STOXX 600 index also experienced euphoria.
The “fear indicator” VIX dropped to its lowest level in a month, reflecting the strong reduction in volatility generated over previous weeks.
Analysts attribute the confidence boost to expectations of a robust agreement, though they caution that the situation remains fragile and could reverse with a single tweet.
Avoiding the 100% Tariff
In the fine print of the agreement, US Treasury Secretary Scott Bessen confirmed that Washington would avoid applying the 100% tariff initially planned for November against the Asian giant. Similarly, China agreed to suspend its export restrictions on rare earth minerals—essential for the technology industry—for a year.
Beijing also resumed purchasing US soybeans, interrupted since the trade war’s onset, a move that alleviates Midwest farmers, one of Trump’s key electoral bases.
The International Monetary Fund (IMF) welcomed the de-escalation and highlighted that China’s economy has shown “greater resilience than expected” despite internal demand weakness. According to its latest report, China’s growth is projected to remain around 4.8% in 2025 and 4.2% in 2026.
TikTok Agreement: A Preliminary Accord
Another point of agreement, at least preliminarily, concerns TikTok’s future. In 2020, Trump threatened to ban the app but changed his stance after leveraging it for his 2024 campaign.
Bessen confirmed that the agreement includes a “final framework” for TikTok’s operations in the US, promising that six of the seven board positions will be occupied by US citizens.
Apart from this China negotiation, Washington has signed framework agreements with Cambodia, Thailand, and Vietnam, part of a trade diversification strategy to reduce reliance on its Asian rival.
Key Questions and Answers
- What is nearshoring, and why is it important for Mexico? Nearshoring refers to the relocation of business processes to neighboring countries, in this case, Mexico. It’s crucial for Mexico because it offers geographical proximity, competitive labor costs, and reduced logistical expenses, making it an attractive alternative to China for many US companies.
- What tariffs did Trump initially impose on Mexico, and what was their impact? Trump initially imposed a 25% tariff on Mexican imports outside the T-MEC framework. This forced Mexican companies to restructure their processes to comply with treaty norms and avoid tariffs.
- How did the recent US-China trade agreement affect Mexico? The agreement could potentially slow down the reconfiguration of manufacturing plants moving from China to Mexico if Chinese factories regain privileged access to the US market.
- What is the significance of the 100% tariff being avoided? The avoidance of the 100% tariff planned for November against China demonstrates a de-escalation in tensions and provides relief to US farmers who export soybeans to China.
- What is the preliminary agreement on TikTok, and what does it mean for its operations in the US? The agreement includes a “final framework” for TikTok’s operations in the US, ensuring that six of the seven board positions will be occupied by US citizens.
