The Geopolitics Of The Mexican Tariff On Textiles

In a December 19 press release, (in Spanish) Mexican president Claudia Sheinbaum announced a 35% tariff on ready-made textile imports and 15% on other textile-related imports. According to the release, Sheinbaum said that the tariffs were to help “strengthened the Mexican economy” and support the national textile industries.

Although the press release did not mention China as the target of the tariffs, it is essentially the target to curtail “back door” trade. According to data from the World Integrated Trade Solution, a trade dataset maintained by The World Bank and the United Nations Conference on Trade and Development, China was the number one source of textile imports into México. The United States was second, followed by Vietnam.

The important issue about Mexico’s textile tariffs to understand is that the tariff is about closing a loophole in the textile trade. Unlike with Vietnam and the US, México does not have a free trade agreement with China.

To reduce tariffs and keep prices low for US consumers, Chinese manufacturers in the automotive and textile industries started importing raw materials and building facilities in México last year to ship their products to the US under the free trade agreement between México and the US.

But as online apparel shopping continued to grow, a loophole in the regulations of the US Customs and Border Protection (CBP) import rules known as Section 321 allowed Chinese textiles to enter the American markets without tariffs. Under Section 321, imports worth less than $800 per shipment bypass duties when they enter the US market.

By sending finished apparel to American online stores in packages worth less and $800, the online stores and the Chinese manufacturers were bypassing American tariffs. This is known as “border skipping.”

According to Digital Commerce 360, apparel and accessories sold online grew by 60% in 2023. The average online purchase spending grew from $157 to $169 per purchase that year. Online apparel accounted for about 35% of the apparel purchases made in 2023. According to the analysis of the industry, the average online clothes shopper is 25 to 34 years old.

By “border skipping,” Chinese textiles are cheaper from online stores for the American consumers. From Mexico’s viewpoint, using México as a springboard into the American textile market kept the Mexican textile market out of the sector. When a Chinese manufacturer establishes a facility to finish raw materials for the American market, the textile product adds value to México by the jobs it creates to finish the apparel in the country and the revenues generated by the country through the facilities used to make the products.

As Sheinbaum said in the press release, the tariffs are meant to stimulate the Mexican textile market. This is accomplished by forcing Chinese manufacturers to invest in building manufacturing facilities in México and employing Mexican workers, to finish the apparels in Mexican factories, as required by the free trade agreement between México and the United States.

Although the tariffs bolster the Mexican market, which is what Sheinbaum wanted, it leads to the unintended consequence of Chinese products entering the American market through “near-shoring” them from Chinese raw materials and Chinese factories finishing the products in México.

In an upcoming column, we will look at nearshoring of Chinese products in México.

The important geopolitical implication is that Sheinbaum succeeds in stimulating the Mexican textile industry through the tariff’s she imposed. She also benefits from the erroneous assumption that the tariff’s were implemented at the behest of Donald Trump, which they were not.