How China Is Beating U.S. Tariffs

Global trade patterns are transforming significantly, with Mexico surpassing China as the leading exporter to the United States for the first time in more than two decades.

At first glance, this shift appears to reflect legitimate supply-chain diversification and Mexico’s enhanced manufacturing capabilities, but the reality is more complicated. Chinese companies are increasingly exploiting Mexico as a strategic gateway to circumvent U.S. tariffs and access preferential trade benefits.

The numbers tell a compelling story. Mexican exports to the United States reached $475 billion in 2023, exceeding the prior year’s imports by approximately $20 billion. Simultaneously, container shipments from China to Mexico surged 28% in the first three quarters of 2023, rising to 881,000 from 689,000 during the same period in 2022. This increase coincides directly with the implementation of U.S. tariff policies in 2018 targeting Chinese goods. This points to a clear strategy to find a new path for trade.

Chinese direct investment in Mexico paints an even clearer picture of this trend. Since 2018, when the United States imposed tariffs on Chinese goods, foreign direct investment from China in Mexico has skyrocketed by 276%. According to Mexico’s Secretariat of Economy, Chinese investment now averages approximately $225 million annually, nearly quadrupling the previous decade’s levels. This investment surge peaked at $385 million in 2021, targeting strategic sectors including electronics, automotive parts and furniture, all industries in China previously subject to U.S. tariffs.

The U.S.-Mexico-Canada Agreement (USMCA) creates substantial incentives for this behavior. About half of Mexico’s exports to the United States qualify for duty-free treatment under the agreement, making Mexican “certificates of origin” extremely valuable for Chinese manufacturers. However, obtaining legitimate certification requires products to undergo “substantial transformation” within Mexico, not merely repackaging or minor modifications of Chinese made goods.

Chinese companies employ several interconnected strategies to exploit this system: Chinese manufacturers are building new production facilities in Mexico where Chinese components undergo final assembly. Component integration incorporates Chinese-made parts into products fully assembled in Mexico, with the final product claiming Mexican origin despite significant Chinese content. Most problematic, some Chinese goods undergo minimal processing likely insufficient to constitute substantial transformation and are relabeled as “Made in Mexico,” and then exported to the U.S. in clear violation of trade regulations.

Enforcement challenges are many. With Mexican goods imported to the United States reaching $510 billion in 2024, an increase of $35 billion from the previous year, the existing customs infrastructure struggles to inspect and verify the true origins of this massive volume of commerce crossing the border daily.