China’s effort to sidestep American tariffs by investing heavily in Mexico may seem clever at first glance, but Washington is catching on. The strategy, which relies on using Mexico as a backdoor into the U.S. market, is already under heavy scrutiny. With new tariffs on the horizon and pressure building from both the United States and Canada, it’s becoming clear that China’s attempt to game the system won’t work for much longer.
The Plan: Shift Production to Mexico
When President Donald Trump launched his first wave of tariffs on Chinese imports in 2018, it sent shockwaves through global trade. Thousands of Chinese products became more expensive to bring into the United States, including steel, aluminum, electronics, and auto parts. The goal was to make American-made products more competitive and reduce the country’s reliance on foreign goods.
Instead of bringing factories to America, many companies looked for ways to get around the new costs. Mexico, with its low labor costs and close proximity to the United States, quickly became a prime destination. The U.S.-Mexico-Canada Agreement (USMCA), signed during Trump’s first term, allowed tariff-free trade between the three countries if products met certain requirements, such as sourcing 75 percent of auto parts from North America.
Chinese companies saw an opening. By setting up factories in Mexico, they could technically qualify under the USMCA and avoid U.S. tariffs. One executive, Tao Zhang, who moved from China to Mexico four years ago, said, “A lot of companies came to Mexico because their clients told them to.” These weren’t just random moves. Many U.S. companies were encouraging their Chinese partners to make the shift to Mexico so that their supply chains could continue uninterrupted.
Billions Invested, Products Still Flowing North
The amount of Chinese investment in Mexico exploded. From 2018 to 2024, Chinese companies invested more than $12.3 billion in the country, according to the Center for China-Mexico Studies at Mexico’s National Autonomous University. These companies are producing everything from car parts and electronics to flooring, furniture, and medical equipment. The goal is simple: sell to American buyers without paying American tariffs.
One of the biggest examples of this strategy is the Hofusan Industrial Park in Salinas Victoria, about 125 miles south of the Texas border. Built on an old cattle ranch, the park now hosts more than 20 Chinese manufacturing companies, with another 20 expected to arrive within two years. “We are expecting the arrival of another 20 companies within the next two years with an estimated investment of $500 million,” said Cesar Santos, chairman of Hofusan.
Santos added, “Many of my clients aren’t worried about unilateral U.S. tariffs on Mexican imports because they know that the product they manufacture isn’t available anywhere else. It may just become more expensive.”
The companies operating in Hofusan include Chinese giants like Holley Group, which owns 80 percent of the park, and manufacturers that supply major American automakers like General Motors and Ford. Bethel Automotive Safety Systems, for example, a Chinese company that supplies car braking systems, stated in a 2024 filing that it built a plant in Mexico “to soften the impact of U.S. tariffs.” That plant created more than 500 local jobs, and a second, even larger plant is already under construction.
How the Strategy Works
The Chinese plan relies on the fact that if a product is assembled in Mexico and meets certain requirements under the USMCA, it can be shipped to the U.S. without tariffs. Even if the factory is owned by a Chinese company and even if many of the parts and machines are imported from China, the finished product counts as Mexican-made.
Chinese companies are also investing in massive construction projects in industrial hubs like Monterrey and Coahuila. At the Alianza Industrial Park, diggers and cranes are busy clearing land for factories being built by companies like ZC Rubber and Leoch, a battery maker. These factories are popping up next to existing American and European facilities, integrating themselves deeply into the North American supply chain.
This has helped Mexico. The country overtook China as America’s top trading partner in 2023, with two-way trade nearing $800 billion. Chinese investment has created around 135,000 jobs in Mexico in just the past four years. In towns like Salinas Victoria, where agriculture once dominated, jobs in manufacturing are now widely available. “Now, only those who don’t want to work don’t work,” said Eusebio Delgado, who drives a van transporting factory workers to and from Hofusan.
Local governments are also benefitting. Raul Cantu, mayor of Salinas Victoria, said the area’s revenue from industrial property taxes has doubled. “There was a lack of public services, from paving to trash collection to public spaces,” he explained. “We are addressing that problem.”
But the U.S. Isn’t Buying It
The Trump administration has made it clear that this workaround won’t be tolerated. Trump has warned that if Mexico continues allowing Chinese companies to use the country as a backdoor into the American market, then the U.S. will respond with harsh tariffs. A 25 percent tariff on Mexican imports has already been proposed and could go into effect soon.
Commerce Secretary Howard Lutnick and other U.S. officials have told Mexico directly that they should “put their own duties on Chinese imports” to show they are serious about enforcing the rules. President Trump has also said, “Congress passed a free trade deal with Mexico — not China.”
Trump’s pick for Secretary of State, Senator Marco Rubio, echoed this concern, writing in a letter, “Immediate action must be taken to prevent the Chinese Communist Party from exploiting USMCA and weaponizing this important trade deal.”
Mexican President Claudia Sheinbaum appears to be listening. Her administration has started cracking down on cheap Chinese imports and may even agree to match U.S. tariffs on some Chinese goods. “We prioritize trade with the countries with which we have trade agreements,” Sheinbaum said in March.
Officials in her government have also pointed out that Mexico does not have a formal strategic relationship with China and that their number one priority is working with the United States.
With Trump threatening tariffs and Mexico tightening its rules, the Chinese investment wave is starting to lose steam. BYD, China’s biggest electric vehicle maker, had plans to build a $600 million factory in Mexico that would have created 10,000 jobs. That project has now been paused.
“There is a perception on the part of the Chinese government that the Mexican market has changed a lot,” said Laura Acacio, an executive with a Chinese medical supplies company. Some Chinese firms are now looking at moving operations to other Latin American countries like Peru, which has its own trade deal with the U.S. and a government more open to Chinese investment.
At the same time, the Trump administration is preparing to review the USMCA agreement in 2026. With Canada also voicing concerns about Chinese companies operating in Mexico, there is a real possibility that the trade deal could be rewritten to close the loophole once and for all.
Even supporters of Chinese investment are now unsure how much longer the strategy can hold. “Of course my clients talk about the impacts of tariffs,” said Huo Pugang, a Chinese businessman who runs a company in Guadalajara, “but there’s nothing they can do about it. They just need to accept lower profitability.”
Washington has sent a clear message: using Mexico as a backdoor to avoid tariffs is not going to work. If China wants to do business with America, it will have to do it by the rules — not by finding shortcuts.
