The limits of Trump’s trade war

Skip to Content News Archives Economy Defence Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Defence Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Defence Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomeFinancial TimesThe limits of Trump's trade warEconomies like Mexico are being forced to choose sides on tradeAuthor of the article:The uncertainty over the future of CUSMA is dragging on the Mexican economy and holding up investment decisions. Photo by Alex Livesey Danehouse/Getty ImagesThe storage yards at Lázaro Cárdenas port in western Mexico were so full of Chinese-made cars by 2023 that new ones had to be opened. By last year, the country was the single biggest export market for China’s cars.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountMexico’s president, Claudia Sheinbaum, levied 50 per cent tariffs on imports of Chinese cars and various other goods from the start of this year amid pressure from United States President Donald Trump, who has accused Mexico of serving as a backdoor for Chinese goods entering the U.S. market.This advertisement has not loaded yet, but your article continues below.But after an initial dip after the start of tariffs, the cars are still coming. Monthly imports are near 2025 levels and sales of Chinese-brand cars jumped by around 20 per cent year on year in the first nine months of 2026. China’s customs figures put overall exports to Mexico at US$73.4 billion in the same period — up 10 per cent from the same period last year, helped by increased exports of AI-related equipment.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againThe experience of Mexico demonstrates how even the world’s most powerful president, bearing down upon a country that sends four-fifths of its exports to the U.S., has struggled to break apart transcontinental supply chains assembled by manufacturers over three decades.“None of this will be easily unpicked by tariffs, as it is part of integrated industrial production governed by companies, not countries,” says Jodie Keane, principal research fellow at ODI Global, a think-tank.Dislodging China from such networks is also proving difficult, given the country’s manufacturing expertise and other advantages such as low labour costs, state support for key industries and an undervalued currency.This advertisement has not loaded yet, but your article continues below.Mexico’s balancing act between Washington and Beijing highlights the delicate position of many midsized countries as the globalization and cross-border trade that their economies were built upon is gradually replaced by a world of competing great powers.“You have to decide whether to align with the U.S. demand and satisfy the [Trump] administration, but at the risk of upsetting China,” says Neil Shearing, chief economist at the Capital Economics consultancy.Mexico’s long-term economic fate depends on the choices that Sheinbaum and others make. Shearing sees parallels with the United Kingdom, which is seeking closer ties with an EU that is trying to curb Chinese access to its markets, particularly for electric cars.Canada’s economy is also heavily interconnected with that of the U.S. though its prime minister, Mark Carney, has taken a more robust approach to Trump. But some regard this deep historical integration between economies as a strength, as well as a vulnerability.“Mexico is now so intertwined with the U.S. and Canadian supply chains, and still has a very favourable tariff position compared to the rest of the world,” argues Vanessa Rubio Márquez, a former Mexican deputy finance minister who now works at the Chatham House think-tank.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.“That gives Mexico more bargaining power than you might think.”From NAFTA to CUSMAThe giant U.S. economy dominated Mexican trade patterns long before Ronald Reagan first mooted a free-trade pact during his 1980 campaign for the presidency.By the time the North American Free Trade Agreement (NAFTA) was signed into law by Bill Clinton in 1993, China was re-emerging on to the world economic stage after a long period of self-imposed isolation.Its accession to the World Trade Organization in 2001 — which Mexico was the last WTO member to approve — heralded a new era of globalization and an opportunity for western manufacturers to outsource assembly to cheaper countries. The prices of many consumer goods tumbled as a result.Since then, China has supplied an ever greater share of the inputs for Mexico’s own manufacturing success, across sectors from autos to electronics. China, Taiwan, South Korea and south-east Asia, which now process many Chinese industrial goods, today account for more than 45 per cent of Mexico’s imports.“Mexico needs China and China needs Mexico, and the United States needs both of them,” says José Luis Bernal, a former Mexican ambassador to China, of the codependency. “It’s an important part of the competitiveness that Mexico has gained in some sectors.”This advertisement has not loaded yet, but your article continues below.Trump, who won re-election on pledges to reshore manufacturing to the U.S. and prevent other countries “ripping off” American workers, used tariffs as leverage to bring foreign governments to heel.He threatened duties on Mexican exports while targeting its politicians for colluding with drug cartels, and has openly mused about ordering U.S. military strikes on narcotics gangs. A White House statement described tariffs as “a powerful, proven source of leverage” in protecting U.S. national interests.That left Sheinbaum, who became Mexico’s president just a few months before Trump re-entered the White House, with an unenviable choice. Despite being a product of Latin America’s hard left who sent oil to prop up Cuba’s ailing dictatorship, she has opted to placate rather than confront the U.S. president.“Sheinbaum is doing a very astute job of doing what she thinks that she needs to for Mexico’s survival,” says Evan Ellis, a professor at the U.S. Army War College who worked in the first Trump administration.“[She] does not want to be Mexico’s first woman president… who was also the first president who completely tanked the Mexican economy.”This advertisement has not loaded yet, but your article continues below.But it has not been an easy balancing act, not least because the U.S. decided in July that it would not automatically renew the Canada-U.S.-Mexico trade deal, negotiated during Trump’s first term to replace NAFTA.That pact, which included stricter rules on which Mexican products qualified for tariff-free access to the U.S., is now subject to annual rounds of renegotiation, in theory until 2036.American trade negotiators have continued to accuse Mexico — alongside south-east Asian economies such as Vietnam and Indonesia — of being “Trojan horses” for Chinese goods, even though Mexico’s factories must sufficiently process Asian input into new goods before they can qualify for tariff-free access to the U.S.CUSMA renegotiation is expected to impose even tougher demands on Mexico to use more U.S. content in its manufacturing, while also providing leverage to Washington to extract further concessions, such as pushing Mexico to buy more U.S. natural gas.The U.S. for its part says it robustly engages with Mexico to strengthen supply chain security, with a state department spokesman citing that “China’s unfair trade practices… pose serious challenges to North American industries”.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.The uncertainty over the future of CUSMA is dragging on the Mexican economy — which is expected to grow just 1.3 per cent this year, well below the 2.2 per cent average forecast for Latin America — and holding up investment decisions.Over the past three years, at least seven different Chinese vehicle manufacturers have reportedly explored building factories in Mexico. But no decisions have been announced.Sheinbaum’s decision to impose 50 per cent tariffs on goods from cars to textiles, while aimed at China, also covered imports from other trade partners including Brazil, South Korea and India, further raising the overall cost of sealing a new deal with the U.S.Polling suggests that Mexicans, who have a long history of mistrusting their northern neighbour, roundly oppose Trump but have responded pragmatically to their government’s approach to him.“Canadians are going to supermarkets and reading the tins to see where it’s from before buying,” says Brenda Estefan, a professor at Mexico’s IPADE Business School. “[In Mexico] there’s no pressure from the ground up from society for her to take a tougher position.”This advertisement has not loaded yet, but your article continues below.As time has gone on without a new deal on CUSMA, though, some in Mexico are beginning to ask whether the government has given too much without results. There has so far been no reduction in U.S. tariffs on light vehicles, steel and aluminum, though both Trump and Sheinbaum said this week that a new deal is close.Sheinbaum has meanwhile built her economic policy around substituting imports from China and trying to produce more goods at home, a domestic agenda that complements the deeper integration with the U.S.She has previously said that while Mexico has a good relationship with Beijing, North America is better off together if it wants to compete with China. On her policy towards the U.S., she has stated that Mexico coordinates without being subordinate.It is a stance that has attracted support from those who argue that Mexico should promote itself as a China-free alternative to south-east Asia as a manufacturing destination.“This is about national security,” says Jorge Guajardo, a former Mexican ambassador to China who is now a partner at the strategic advisory firm DGA Group.This advertisement has not loaded yet, but your article continues below.“Mexico has nothing to win from China.”‘Help us to help you’For all of the trade between the two countries, diplomatic relations between Mexico and China are in a curious stasis. There has been no state visit on either part in almost 12 years.When China’s President Xi Jinping last came to Mexico in 2013, he visited Mayan pyramids in the Yucatán Peninsula and declared that the snakes carved on the ancient structures were a good omen for both countries. Mexico was upgraded to a strategic partner with China, on par with France and the U.K.But within two years, the two reverted to a more distant relationship, as two huge Chinese-led projects — a high-speed train line and a large wholesale retail hub — were cancelled.Sheinbaum’s tough line on China, including recently proposing national security investment screening, has largely been met with strategic patience in Beijing, apart from some strongly worded statements immediately after the imposition of tariffs.In a statement to the FT, the country’s Ministry for Foreign Affairs says it welcomes the Mexican president’s November visit to China for an Asia-Pacific Economic Cooperation forum leaders’ meeting.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.It adds that Beijing wants to take the opportunity to “advance the comprehensive strategic partnership between China and Mexico towards greater stability and sustained progress”.Sheinbaum has seemed to downplay the trip, stressing it is linked to Mexico’s own leadership of Apec in 2028 and letting it be known that she will leave Shenzhen early to attend Mexico’s annual Revolution Day parade.But her attendance is seen by some as a subtle message to the two world powers that Mexico has not completely shut the door on economic and trade ties with China.“Mexico has a huge opportunity to be the link between the two great economies,” says Rafael Valdez, who works on ties with China at Mexico’s Council for Foreign Trade, Investment and Technology (COMCE).“It had to put tariffs on China when it didn’t have a choice, but now it’s starting to give signals of diversification without a disruptive new discourse,” he adds.He and others who track Chinese investment in Mexico are still hopeful for greater openings in future. “Chinese companies’ interest in investing in the Mexican market hasn’t disappeared, though their investment decisions are increasingly cautious,” says Guo Cunhai, researcher at the Institute of Latin American Studies at the Chinese Academy of Social Sciences.This advertisement has not loaded yet, but your article continues below.The private sector also understands that while getting approval for any big new Chinese factories is unlikely in the current political climate, that could change. Ellis, of the U.S. War College, describes the message from Mexico as: “don’t offer right now, don’t ask, it could happen in the future when things calm down, but for right now, help us to help you”.As with its recent agreement with Brussels to reduce electric vehicle exports to the EU, Beijing has played a waiting game that leaves smaller countries feeling the squeeze in a new era of great-power competition.Just as Sheinbaum must placate Trump in order to preserve access to Mexico’s closest and most valuable export market, so the UK’s new prime minister, Andy Burnham, finds himself under pressure to erect more barriers to trade with China as a prerequisite for closer ties with the EU.Many South American countries, whose economies are more dependent on mineral and agricultural exports to Asia, are continuing to deepen ties with China. But with Trump now entering the second half of his time in the White House, many are also wary of leaning too far in either direction.This advertisement has not loaded yet, but your article continues below.“The U.S. and China are pulling apart from each other, which leaves smaller players in this game essentially having to pick sides,” says Shearing of Capital Economics.Mexico has clearly chosen to toe Washington’s line on China. The question for Sheinbaum and Latin American leaders is whether they will have more leeway to pursue closer relations with Beijing, or even want to do so, once Trump has left office.“The Chinese are taking a pragmatic position, as they are with the U.S., with Europe, with everyone,” says Andrés Rozental, a former Mexican deputy foreign minister and senior diplomat.“They want to be one of the two superpowers in economic terms, as well as in political terms, and I think they’ve realized that the way to do that is to keep everybody quiet.”© 2026 The Financial Times LtdWe apologize, but this video has failed to load.This advertisement has not loaded yet.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.