Mexico's tariff plan could unravel the red tape that binds us

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It turns out that the ramifications of one country moving from a rules-based trading system to a more ‘discretionary’ – or politicised – approach is like knocking over the first domino. The red tape that binds us all together begins to unravel. 

The latest tariff news – that the Mexican government has asked its Congress to raise tariffs on countries with which it has no trade agreement – is a case in point. 

The bill aims to increase the tariff cap to whatever is permitted by the WTO – so still a rules-based decision. 

But the proposed taxes on some 1,500 products, and in particular Chinese-made cars, which could see tariffs go up to 50%, are not all about the Mexican economy. Yes, the economy minister, Marcelo Ebrard, reportedly said that “the Mexican auto industry is 23% of national manufacturing, so we have to protect it. One way is to increase the tariffs paid on those light vehicles imported so cheaply, below the reference price, so to speak.” 

And yes, Chinese cars accounted for more than 20% of new car sales in Mexico last year, amounting to more than 300,000. 

But there is no argument, even from Mexico, that this plan is in part an attempt to appease the US. 

The North American trade agreement, USMCA, is now under negotiation again, with public consultations set to start before 4 October. Congress has to be briefed in January. 

It’s well-known that the US administration wants to stop cheap imports from China into Mexico, and this also aligns with Mexican plans to bolster domestic production and support Mexican jobs. 

The sectors involved include cars and car parts, steel, textiles, toys and footwear, for nations without a trade deal, including China, South Korea and India. 

So the tariff plan plays well with both Mexican workers, and the US. A win-win, surely. 

But this is where it could all unravel. As is generally believed by economists, tariffs can cause inflation; Mexican exports which rely on Chinese components could be harmed; and any such move could reduce China’s investments in Mexico, which have been growing – particularly in the automotive sector. In 2023, Chinese companies accounted for more than 30% of foreign investment in the state of Nuevo Leon – although US investment accounted for 47%.  

But China plays tough in a trade war. Look at the soybean sector. 

According to the American Soybean Association (ASA), last month China had no orders for US soybeans for 2025/6. In a ‘normal year’, China would order about 14% of its total soybean orders from the US – in the 2022/3 season it took 27% of its total soybean requirements from the US. 

The ASA noted: “China has not been shy about its strategies to circumvent freshly harvested US supplies this fall. China imported record volumes of Brazilian soybeans between April and July 2025, growing domestic stockpiles of soymeal to the point at which Chinese soybean processors are facing negative margins. In early August 2025, traders announced a first-time export sale of Argentine soymeal to China to be delivered this fall to reassure Chinese feed mill buyers anxious about hog feed availability amid the ongoing trade dispute. 

“China’s absence from the new crop export market has dealt a heavy blow to US soybean futures prices, especially as favourable US growing conditions this summer will lead to above-trendline soybean yields to be produced in the 2025 crop year, which began 1 September. Between 18 July and 6 August, new crop November 2025 soybean futures fell from $10.3575/bu to $9.845/bu amid increased US production expectations and lack of new crop export orders from China.” 

While Mexico’s imports from China heavily outweigh exports, China could still retaliate on the $5bn+ market for electrical equipment, or the €1.4bn market for vehicles. 

And the retaliation could be swift: US soybean farmers are hurting. 

“With the grim export outlook currently, there is no guarantee farmers will have a chance to earn enough revenue to cover production costs incurred during the current growing season,” noted the ASA.

“The shrinking profit margins will have widespread economic impacts, not just for farm families and young farmers who will suffer the losses more acutely, but rural communities will suffer as well amid the lack of reinvestment from the agricultural sector.” 

So be careful what you wish for, in a world where everything is connected.