Arbitrary tariffs not the right way for Mexico to 'boost domestic production'

Mexico's recent decision to approve sweeping tariff hikes on more than 1,400 products from nonfree trade agreement partners, including China, has drawn widespread attention. While Mexican lawmakers and some external voices portray the move as a step toward "boosting domestic production", the broader context reveals a far more complex — and troubling — picture.

It is no coincidence that the tariff package was passed as the United States-Mexico-Canada Agreement approaches its 2026 review. Shortly after Mexico's Congress of the Union approved the tariff increases on Dec 10, a US presidential trade adviser described the move as a "milestone" in Washington's efforts to reshape the international trade order. The implication is that the US is pleased to see Mexico "following" its lead by wielding tariffs as a supposed cure-all for economic "challenges", particularly those it links to China.

China is Mexico's second-largest supplier of automotive parts, and Mexico's textile and apparel industries are largely dependent on imported goods from China. Not surprisingly, the final version of the tariff package reduced proposed tariff increases for auto parts, light industrial goods and textiles, proof Mexican industry understands that cutting off cost-efficient and reliable supply chains would harm, not help, domestic production.

Claims that higher tariffs will shield the Mexican industry from the "impact" of Chinese goods, promote import substitution and revive manufacturing competitiveness ignore Mexico's own history. In the mid-20th century, Mexico pursued an import substitution strategy built on high tariffs and strict controls. While it created an industrial base in the short term, excessive protection eroded competitiveness. When markets opened during the Latin American debt crisis of the 1980s, many protected industries collapsed. By returning to this outdated approach, therefore, Mexico is repeating past mistakes.

The Mexican Automotive Industry Association has warned that tariffs will drive up production costs, fuel inflation and introduce new uncertainties — conditions Mexico is striving to avoid. More importantly, cooperation with China offers Mexico tangible benefits: investment, employment and technology transfer in sectors such as electric vehicles and battery manufacturing. Relying solely on domestic or Western capital would significantly slow Mexico's development and industrial upgrading.

China fully understands Mexico's predicament regarding pressure from its northern neighbor. Beijing has approached the issue with restraint. However, restraint does not mean acquiescence. If the tariff measures are implemented, China will take corresponding action.

China has already launched a trade and investment barrier investigation against some Mexican policies and practices, and based on its findings, countermeasures targeting sensitive Mexican sectors — fully permitted under Chinese law — remain an option. Turning to the World Trade Organization's dispute settlement mechanism is another option.

Mexico therefore faces several hard facts. First, tariffs ultimately burden importers and consumers, weaken manufacturing competitiveness and deter investment. Second, broad-based tariff hikes invite retaliatory actions and compound uncertainty. Third, damaging trust with China would undermine cooperation in emerging industries vital to Mexico's long-term diversification.

The narrative of some in the US, hailing Mexico's move as part of a "new trade order", rests on a flawed premise: Imbalances reflect stages of development and the global division of labor, not moral failings to be corrected by coercion.

For Mexico, the choice is clear. It can weaken its competitiveness through isolation, or it can seek solutions through dialogue and cooperation. Tariffs are not the answer. Cooperation is. Not only for China and Mexico, but for all countries that realize the value of a stable, open and genuinely multilateral trading system.