The U.S.-China Trade War and Its Impact on the U.S.-Mexico Trade Relationship
By Editorial Staff
October 28, 2024
By: Jorge A. Torres, President of Interlink Trade Services/U.S. Customs Broker
Amid rising trade tensions between the world’s major economies, the U.S.-China trade war has significant effects on Mexico, particularly in its bilateral trade with its northern neighbor. Jorge A. Torres, President of Interlink Trade Services and U.S. Customs Broker, dissects the critical aspects of this economic conflict, from the imposition of special tariffs under Section 301 to the role that Mexico plays in navigating this challenging global environment.
Focusing on customs mechanisms such as De Minimis and Section 321 and the recent surge in Chinese exports to Mexico, Torres encourages reflection on how Mexico may be benefiting from this situation, while also examining the risks and opportunities it presents.
Below are the key points of his analysis, as well as potential trends that could shape the future of U.S.-Mexico trade relations.
Section 301 of the Trade Act: Trade Sanctions and Their Impact
Title III of the Trade Act of 1974 (Sections 301 to 310, 19 U.S.C. 2411-2420), called “Relief from Unfair Trade Practices” and known as “Section 301,” enables the U.S. to impose trade sanctions on countries that violate trade agreements or engage in “unjustifiable” or “unreasonable” actions that threaten U.S. trade.
Why Did the U.S. Impose Special Tariffs on Chinese Products Under Section 301?
On August 18, 2017, the U.S. Trade Representative (USTR) launched an investigation to assess certain actions, policies, and practices of the Chinese government concerning technology transfer, intellectual property rights, and innovation. During the investigation, the USTR concluded that China’s actions, policies, and practices were discriminatory, unreasonable, and burdensome to U.S. trade, thus justifying trade sanctions under Section 301(b) of the Trade Act of 1974. In response, President Trump initiated actions imposing ad valorem tariffs on certain Chinese products.
General Overview of the Product Lists Affected:
- List 1 – Effective July 6, 2018, with 25% tariffs on $34 billion USD worth of Chinese goods.
- List 2 – Effective August 23, 2018, with 25% tariffs on $16 billion USD worth of Chinese goods.
- List 3 – Effective September 24, 2018, with 25% tariffs on $200 billion USD worth of Chinese goods.
- List 4A – Effective September 1, 2019, with 15% tariffs, later reduced to 7.5% on February 14, 2020 (List 4B was never implemented due to the start of U.S.-China negotiations).
Minimis/Section 321/Type 86
Section 321/De Minimis allows the “importation” of shipments valued at or below $800 USD per individual consignee per day without formal entry requirements (only a manifest is needed). Type 86 Entry is a simplified customs process for shipments valued at or below $800 USD per individual consignee per day, commonly used for merchandise regulated by other government agencies such as the FDA. Both processes are widely utilized for e-commerce shipments.
Shipping Statistics:
Minimis/Section 321
- FY 2022 - 685.4M ($46.5B)
- FY 2023 - 1B ($54.5B)
- 2024 mid-year – 705.1M ($32.8B)
Type 86 Entry
- FY 2022 – 333.7M
- FY 2023 – 623.1M
- 2024 mid-year – 474.7M
Monitoring and Restrictions by CBP
CBP is increasing its scrutiny of these shipments due to “irregularities” like vague descriptions, undervaluation of merchandise, incorrect classifications, high-risk goods (medications, counterfeits), and drugs (fentanyl). Several customs brokers have lost the right to process Type 86 entries due to violations. Additionally, there are Congressional initiatives to restrict De Minimis usage.
Mexico “Beats” China
Containerized exports from China to Mexico saw a significant increase of nearly 60% when comparing January 2023 to January 2024. This growth fits into an annual trend of rising trade between the two nations, which grew by 34.8% in 2023 compared to 3.5% in 2022. This trend suggests that China may be using Mexico as a “springboard” to avoid Section 301 tariffs, utilizing mechanisms like De Minimis. Additionally, e-commerce companies and fulfillment centers are establishing operations in Mexico to benefit from U.S. De Minimis exemptions.
Top Countries from Which the U.S. Imports:
2022
- China - $536.3B
- Mexico - $454.8B
- Canada - $436.6B
2023
- Mexico - $475.6B
- China - $427.2B
- Canada - $421B
Trade Between China and Mexico
Containerized exports from China to Mexico increased by nearly 60% when comparing January 2023 to January 2024, indicating that China might be using Mexico as a “springboard” to avoid Section 301 tariffs.
Chinese Products Exported from Mexico
Currently, CBP is increasing inspections and audits of U.S. imports to ensure that no “trans-shipment” of Chinese-origin goods is occurring through other countries to avoid Section 301 tariffs.
What Lies Ahead for the U.S.-China Trade War and Its Impact on the U.S.-Mexico Trade Relationship?
The U.S.-China trade war is likely to continue, regardless of the outcome of the November 2024 presidential elections. The current U.S. administration, led by Joe Biden, focuses on foreign trade policies with a strong emphasis on human rights and environmental issues, as noted by U.S. Trade Representative Katherine Tai. Should this administration remain in power, policies will likely continue in the same direction.
If Donald Trump returns to power, the trade war would likely proceed in a similar direction but with a more aggressive approach, especially concerning tariffs.
Both the U.S. and the European Union have indicated that China faces an issue of “industrial overcapacity,” particularly in sectors like electric vehicles, solar panels, and lithium batteries. This overproduction allows China to flood global markets with these products, significantly impacting these industries.
On May 14, 2024, the Biden administration announced the extension of tariffs imposed under Section 301, along with an additional increase on certain Chinese products, to maintain trade pressure on China, affecting key strategic sectors. These are listed below:
In conclusion, the U.S. pressure on Mexico to adopt more aggressive trade policies toward China creates tensions that could undermine the benefits of nearshoring. This places Mexico in a challenging position, balancing its relations with both superpowers. Although China has yet to become a major player in foreign direct investment in Mexico, it is poised to do so, especially in the automotive sector. With the renegotiation of the USMCA on the horizon for 2026 and uncertainty surrounding the agreement's future—particularly if Trump returns to power—Mexico must prepare for a more protectionist and regionalized environment.
Download Jorge A. Torres' full presentation, President of Interlink Trade Services and U.S. Customs Broker, at the following link: https://mexicoindustry.com/other-pages/noticias-pdf/la-guerra-comercial-eua-china-y-su-impacto-en-la-relacion-comercial-eua-mexico.pdf