The impact of US-China trade tensions is being felt across the globe, with anticipated tariff increases reshaping trade relationships. The tensions, which have only escalated under the Biden administration and President-elect Donald Trump, signal significant shifts not only for the United States but also for its key trading partners: Mexico and Canada.
Throughout 2024, the Biden administration has posed threats to impose new tariffs on Mexico. The situation has intensified following President-elect Donald Trump's recent statements where he indicated possible tariffs of up to 60 percent on Chinese products and 25 percent on imports from both Mexico and Canada.
Notably, the US's key trading partners—Canada, China, and Mexico—accounted for about 43 percent of US imports as of 2023. These looming tariff hikes could disrupt established supply chains and trade flows. The increasing distrust of China, long voiced through Trump's campaign slogan of "Make America Great Again," reflects the persistent competition between these two economic giants, particularly evident within the realms of technology and innovation.
Historically, the US has championed free trade through institutions like the General Agreement on Tariffs and Trade and its successor, the World Trade Organization—entities meant to encourage the liberalization of global trade. Tariffs on imports steadily fell from 3.3 percent in 1990 to just 1.23 percent by 2008. Yet, recent years have seen these figures reverse, rising to 2.35 percent by 2023. The US, as of this year, imposes varying tariffs: 10.4 percent on Chinese goods, far higher than the mere 0.09 percent placed on Canada or 0.26 percent on Mexico.
This differential tariff approach speaks to the heightened strategic focus of the US as it attempts to grapple with China's growing economic influence, which, since becoming the world's major exporter in 2017, has also extended its reach within Latin America, particularly to countries like Argentina and Brazil.
Set against this backdrop, Mexico finds itself at the center of what some are calling a "new triangular relationship" involving trade with both the US and China. Not only does Mexico rely heavily on exports to the US, but the integration of Chinese components within Mexican goods has surged, indicating how intertwined these economies have become. According to reports, Mexican gross exports to the US now carry considerable Chinese value-added parts, with proportions growing significantly over the last two decades.
Currently, many of the vehicles imported from China originate from major Western automakers like General Motors and Ford, which have opted to manufacture within Mexican borders. Such dynamics exemplify the complicated interdependencies established among these nations. A path forward is not as straightforward as merely substituting trade relationships; doing so could take years and incur heavy costs for companies and consumers alike.
Effectively, if tariffs are imposed as suggested by Trump, the fallout could be even more disastrous and might unravel the current network of global trade foundationally established on principles like the Most-Favored-Nation clause advocated by the WTO. The risk of newly discriminatory trade practices reemerging, along with rising consumer prices and diminishing global institutions, looms large. The repercussions would extend far beyond individual countries, significantly impairing trade relationships established under agreements like the United States-Mexico-Canada Agreement (USMCA) signed back in 2020.
The prospects of USMCA being re-negotiated pose challenges of their own, particularly since its framework was built around significantly lower tariffs than those proposed now. A potential re-examination of USMCA could undercut years of negotiation and strain cooperative trade efforts across borders.
But amid these threats lies potential. The Biden ad Trump administrations recognize they occupy strategic positions to reshape these relationships. Historically, the Americas have tremendous advantages—a wealth of resources and industrial capacity sitting right next to one of the largest consumer markets. Utilizing this position could allow joint efforts to mitigate China's dominance, particularly as countries work to revamp supply chains and reinforce trade ties across the Americas.
Despite the risk of tariff escalations, proponents of closer cooperation argue there exists, perhaps for the first time, rare bipartisan momentum to engage with Latin America and break free from dependence on China. Nevertheless, succeeding will require substantial political and financial investment to support integration across borders.
Ramon Escobar, managing director at Actum and former US diplomat, emphasizes the urgency of unified action between the US and its partners, stating, "The time to act is now—before this historic opportunity slips away." Policymakers and business leaders must recognize this as not just about tariffs, but fundamentally about delineations of power and opportunity within global economics.
For the Americas and their position within the global market to remain relevant, maximizing this cooperation is key to establishing themselves as the most competitive regional economy. Reshaping relationships and crafting comprehensive, collective economic success will not only help curb China's ambitions but also create stability, growth, and prosperity for the nations involved.
