Mexico hits Asian cars with 50% tariff; China vows retaliation

China has officially warned that it will retaliate after Mexico announced a plan to increase tariffs on Asia-manufactured cars, especially those made in China, to 50%, up from the current 20%.

The warning was issued on Thursday night, when China’s Ministry of Commerce released a statement saying it “hopes Mexico will be extremely cautious, and think twice before acting.”

The statement, according to CNBC, added, “We are not willing to see both sides’ economic cooperation affected by this situation.”

This proposal came straight from Marcelo Ebrard, Mexico’s Secretary of Economy, who told reporters on Wednesday that the new tariff rate is part of a wider federal budget package and would impact around $52 billion worth of imports.

He noted that Congressional approval is still required and that, if passed, the higher duties would be enforced 30 days later. The Mexican government is pushing this move while benefiting from the United States-Mexico-Canada Agreement (USMCA), which allows for tariff-free trade only when a large chunk of a vehicle is built within North America.

In the same Thursday statement, China said it would “take necessary measures … to resolutely safeguard its legitimate rights and interests.” It also blasted Washington’s tariff practices, calling them coercive and arguing that they damage other countries’ interests: “The coercion of others should never sacrifice third-party interests.”

China defends trade position as more countries apply pressure

China’s complaint isn’t just about Mexico. Beijing pointed to what it called long-standing U.S. tariff abuses and warned against aligning with those policies.

China also reminded the world that it has already imposed its own countermeasures in recent trade spats with Washington, including limiting exports of certain minerals used in high-tech industries; minerals where Chinese firms dominate the global supply chain.

Even though China is unhappy with Mexico’s move, the ministry hasn’t used the same rhetoric with other nations. Jorge Guajardo, a former Mexican ambassador to China and now a partner at Dentons Global Advisors in Washington, D.C., pointed out that Russia already imposes 60% tariffs on Chinese vehicles, and Brazil introduced 35% duties on electric car imports in July.

“I have yet to see China label the same accusations [of coercion] on Russia or Brazil,” Jorge said in an email to CNBC. “I assume that’s a tacit agreement that they understand there is no appetite in the world to absorb China’s excess capacity.”

That overcapacity issue was already addressed last year by a Chinese official, who told CNBC that global trade exists precisely to deal with things like this. If China produces too many electric cars, the official argued, that’s no different than other countries exporting natural gas, food, or semiconductors in large quantities.

Chinese automakers pour billions into Mexico ahead of tariff wall

Between June 2022 and July 2024, more than 20 Chinese auto companies announced plans to invest over $7 billion in Mexico, according to data from the Coalition for a Prosperous America, an advocacy group based in the United States.

These announcements include projects for auto parts as well as full vehicle assembly. It’s not clear how many of these plans are already finished. One major player, BYD, hasn’t even started building its expected factory in Mexico.

Mexico has also become China’s top destination for car exports, based on shipment data from earlier this year. But it’s not Western brands that Chinese cars are competing with in Mexico.

Eugene Hsiao, the head of China equity strategy at Macquarie Capital, said on CNBC’s “The China Connection” that “where they’re taking market share, a lot of times, it’s not really from the Western brands. It’s really from the other Asian brands. I think that’s what we’ve seen in Mexico.”

Even before this 50% tariff was announced, there were whispers of a possible 25% increase, and Eugene addressed that too. “The value proposition for a lot of these Chinese cars, I think, remains intact, even with some of these tariffs,” he said. That means despite rising import costs, buyers may still choose Chinese vehicles, especially if they’re still cheaper or offer more features compared to regional rivals.

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