How Chinese goods reach America through Mexico

China’s share of US merchandise imports has fallen from twenty-one per cent in 2017 to under fourteen per cent today. On paper, Washington’s protectionism has worked and dependence on Chinese factories has shrunk. A closer look at supply chains suggests the decoupling is largely for show.

Six years of tariffs

The decline began with the trade war of 2018 and 2019, when the Trump administration imposed tariffs of up to 25 per cent on roughly $370 billion of Chinese goods under Section 301 of the Trade Act. The Biden administration kept almost all of those duties, added export controls on advanced chips, and in May raised tariffs on Chinese electric vehicles to 100 per cent. By 2023 China's share of American imports had fallen to 13.9 per cent, and Mexico had overtaken it as the largest source of goods entering the United States.

Those headline numbers measure where the last shipment came from, not where the value was created. Trade statistics record the country of origin of the finished product, which under customs rules is the place where it was last substantially transformed. A television assembled in Tijuana from Chinese panels, circuit boards and casings counts as Mexican. So does a car part machined in Monterrey from Chinese steel.

Made in China, assembled in Mexico

Chinese manufacturers adapted quickly. They send components to Mexico and South-East Asia for final assembly, and the finished goods enter the United States tariff-free. Mexico has overtaken China as America’s biggest trading partner, but its exports are packed with Chinese-made parts. The tariffs have lengthened supply chains and added cost without breaking them.

The same pattern shows up in the other direction. As Mexican and Vietnamese exports to America have risen, so have their imports from China, often in the very categories they then ship north. Chinese companies have also built factories in Mexico's northern industrial parks, a short truck ride from the Texas border, to be inside the North American trade bloc. Research by economists at the World Bank and elsewhere has found that the countries gaining the most American market share since 2018 tend to be those most tightly woven into Chinese supply chains.

An old pattern

Trade barriers have been rerouted before. When Washington pressed Japan into voluntary limits on car exports in 1981, Japanese manufacturers responded by building assembly plants in the United States, starting with Honda in Ohio, and by shifting their exports towards pricier models that earned more per restricted unit. The quota reduced the count of Japanese cars crossing the Pacific while leaving Japanese firms in firm command of the market. American buyers paid higher prices throughout. The difference then was that the new factories were on American soil, which at least brought jobs; this time the assembly work has gone to Mexico and South-East Asia instead.

Who pays for the detour

The extra leg is not free. Components must be shipped twice, assembly moves to places with less experienced suppliers, and importers pay for new compliance work to prove where their goods were made. Those costs land on the American companies buying the goods and, through them, on consumers. Chinese component makers keep their sales; Mexican and Vietnamese assemblers gain jobs and investment; the American buyer pays more for much the same product. The Mexican peso and industrial property in northern Mexico have been among the clearest financial beneficiaries of the shift, and both are exposed if Washington decides the route itself is the problem.

Another route bypasses assembly altogether. Parcels worth less than $800 can enter the United States without duty under the de minimis rule, and online retailers shipping directly from Chinese warehouses have used it on a vast scale. In September the administration proposed excluding goods covered by the China tariffs from that exemption, an admission that the front door was closed while a side door stayed open.

The case for real diversification

The counterargument deserves a hearing. Assembly in Mexico or Vietnam is still genuine economic activity, and over time it tends to pull suppliers along with it, as factories find it cheaper to source parts nearby. Rules of origin under the USMCA, which require 75 per cent regional content for cars to qualify for duty-free treatment, limit how much Chinese value can pass through in the most sensitive sector. Some production has moved in earnest, notably electronics assembly shifting to India.

That is true at the margin, and it takes years. For now the deeper dependence remains: American supply chains still rely on Chinese factories for components, materials and machinery that no other country produces at the same scale or price. Diversifying the final step while leaving the upstream links untouched reduces the headline number more than the underlying exposure.

What happens next

The loophole is now a political target. Donald Trump has proposed tariffs of 60 per cent on all Chinese goods and a lower universal tariff on everything else, which would reduce the advantage of routing through third countries but raise costs across the board. Mexico has already raised tariffs on a range of imports from countries without trade agreements, partly to reassure Washington, and a joint review of the USMCA is scheduled for 2026, when rules of origin and Chinese investment in Mexico will be high on the American agenda.

The indicators to watch are Mexico's imports from China, the Chinese share of foreign investment in Mexican industrial parks, and any American move to tighten rules on how much foreign content a product can contain and still qualify as Mexican. Each would show whether Washington intends to measure dependence by value added rather than by the label on the box.

The tariffs mostly changed the route Chinese goods take to America. US buyers now pay for the extra leg through Mexico, and the country relies on Chinese factories about as much as it did in 2017. Whoever wins next month, expect the next round of trade policy to target Mexico and Vietnam as conduits, with American importers paying the bill for a second time.