Ongoing Impacts of the Trade War on Asian Factories and Retail Chains in Mexico
"Fine-Tuned" and Stable Tariffs: Global Winners and Losers
The trade war launched years ago between the United States and China has morphed into a broader and more permanent trade policy. U.S. tariffs have been "fine-tuned" and stabilized, extending even to other countries. In 2025, the American administration maintained and increased many levies: general tariffs of 10% to 20% are applied to imports from dozens of countries, including traditional allies (15% on goods from the European Union, Japan, and South Korea; 20% on products from Vietnam, Taiwan, or Bangladesh). Furthermore, strategic sectors have been specifically targeted: for example, a 100% tariff on imported chips and semiconductors was announced (with the exception of those manufactured within the U.S.). These measures reflect a second phase of the trade war—a "Trade War 2.0"—in which Washington seeks to close loopholes and prevent its companies from evading tariffs through third countries.
With elevated tariffs now a lasting reality, winners and losers are beginning to emerge. Mexico stood out as one of the relative winners, benefiting from trade diversion and the relocation of manufacturing to North America. Mexican exports to the U.S. have grown at a rapid pace, with an increase of more than 20% annually between 2020 and mid-2024. In fact, Mexico surpassed China as the top U.S. trading partner in 2023, thanks to the nearshoring boom and its extensive trade agreements. In contrast, China has seen its share of U.S. imports decline, falling from 17.7% to 13.5% of the total between 2020 and 2024. Asian countries such as Vietnam, India, Malaysia, and Thailand also captured part of the production diverted from China—at least until Washington's recent "reciprocal" tariffs began to jeopardize the profitability of the China Plus One strategy.
However, even the winners face costs and risks. U.S. companies and domestic consumers are dealing with higher prices and supply chain uncertainty. Stable tariffs drove up the cost of inputs and finished products; the International Monetary Fund itself raised its U.S. inflation projection for 2025 by one percentage point (to ~3%) due to these tariffs. Protected U.S. manufacturing sectors—such as steel, aluminum, and semiconductors—gained breathing room from foreign competition, but other industries face retaliation and higher costs. For example, U.S. agricultural exports to China took another hit: following the new 2025 tariffs, U.S. soybean sales to China plummeted 67% in just one week of April, and experts warn that many farmers will "have a tough time" with Chinese retaliation. In many respects, the recent trade war confirms that "everyone loses" something: global supply chains are less efficient, prices are rising, and uncertainty weighs on investment.
Nearshoring in Mexico: A Historic Opportunity, Lagging Progress
In Mexico, the reconfiguration of global supply chains opened a historic nearshoring opportunity. Geographic proximity, competitive labor costs, and the USMCA (T-MEC) framework made the country extremely attractive for relocating manufacturing previously based in Asia. The Mexican government reported a record $36 billion in Foreign Direct Investment (FDI) in 2023, 27% more than the previous year. Over 400 investment projects (US$170 billion between 2023 and August 2024) related to nearshoring were announced, including plans from automotive giants like Tesla, BMW, Ford, and GM, as well as Asian assemblers such as BYD (China) and Kia. This initial boom positioned Mexico as the primary beneficiary of the trend and raised hopes that the country could evolve from an assembly hub into a manufacturing innovation hub.
Nevertheless, the nearshoring frenzy lost momentum abruptly in late 2023 and early 2024, leaving projects up in the air. Although total FDI was high, the share of new investment dropped dramatically: only $4.817 billion in "new" capital entered in 2023 (a mere 13% of total FDI, compared to 50% in 2022). This indicates that the boom did not translate into as many new factories as expected. In fact, in July 2024, Tesla indefinitely postponed construction of its megaplant in Nuevo León, cooling one of nearshoring's flagship projects. As a result, planned investments in key sectors like steel and aluminum—inputs for auto parts—were thrown into doubt, and several suppliers slammed the brakes on their expansion plans.
The main cause of this lag was the resurgence of trade tensions with the U.S. in early 2025. The arrival of a hostile new U.S. administration shook confidence: Donald Trump, upon returning to the presidency, threatened blanket 25% tariffs on all Mexican imports (under the pretext of curbing drugs and migration) and went so far as to initially impose that 25% on exports from Mexico and Canada. Although he later temporarily exempted vehicles and goods covered by the USMCA and postponed the full implementation of these tariffs by one month, the damage to the investment climate was already done. Uncertainty skyrocketed, as Mexico saw its preferential access to the U.S. market placed in jeopardy. "Companies that were sitting on the fence, waiting to see what would happen, put their projects on hold," describe industrial real estate analysts. Indeed, Mexican manufacturing employment declined—more than 100,000 jobs were lost in early 2025—reflecting the slowdown in activity.
Faced with this scenario, Mexico responded with defensive measures to shore up nearshoring. Beginning in April 2024, the López Obrador administration (and later that of President Claudia Sheinbaum) imposed temporary tariffs of 5% to 50% on 544 products imported from countries without trade agreements (primarily China, India, and Vietnam). The decree covered everything from steel, aluminum, chemicals, and plastics to textiles, footwear, furniture, and musical instruments, seeking to protect vulnerable domestic manufacturers. Officially, these tariffs were said to provide "breathing room" for national industries hit by cheap imports and to create fair conditions for companies that might invest in Mexico through nearshoring. However, many noted the geopolitical undercurrent: the U.S. was pressuring Mexico to curb the influx of Chinese goods into North America. Experts pointed out that Mexico's alignment with Washington—"standing up" to China—was largely a response to American concerns that China was using Mexico as a backdoor to the U.S. market. Despite its nuances, Mexico's strategy marks an unusually protectionist turn, reflecting the priority of consolidating nearshoring even at the cost of trade tensions with Asia.
Amid the tariff "storms," there are signs of moderate stabilization in 2025. After the initial shock of Trump's threats, a temporary 90-day trade truce was reached between the U.S. and China that reduced some elevated tariffs and "calmed the waters" starting in April. This gave investors a reprieve: companies that had paused their plans in Mexico resumed discussions and project design starting in the second quarter of 2025. Local executives report a rebound in demand for industrial facilities since April and significant investment plans in border industrial parks. Automotive plant expansions have been revived (for example, BMW in San Luis Potosí for electric battery production, or Volvo building a truck plant in Nuevo León). The logistics sector is also showing dynamism, with increased demand for warehouses and distribution centers to support the productive relocation.
However, the future of nearshoring in Mexico remains contingent on trade certainty. Industry voices warn that triggering a "second wave" of investments will require extending the tariff truce or reaching firmer agreements. The 2026 USMCA review will also be key, where Mexico will seek to ensure that unilateral tariffs are not repeated. In parallel, Mexico must address internal bottlenecks—infrastructure, energy, water, security, and the rule of law—that currently limit its attractiveness despite the nearshoring opportunity. The latest projections reflect caution: organizations like the IMF and the OECD have cut Mexico's growth forecast for 2025 to just ~1% or less, citing trade uncertainty and its negative "multiplier effects." In the words of one analysis, "nearshoring is in decline" and the country will only be able to fully capitalize on it if it achieves stable conditions in the medium term. In short, Mexico envisions major long-term benefits, but the road has become rougher than anticipated.
China: Between Asian Resilience and Market Loss
Seven years after the start of the trade war, China remains the central player, though no longer the only one. On one hand, it is clear that China has lost ground in the U.S. market due to punitive tariffs. Chinese exports to the U.S. contracted, reflected in the decline of its market share in imports from ~18% to ~13%. Likewise, the new round of tariffs in 2025—including Trump's massive 145% tariff on nearly all Chinese goods—caused a sudden paralysis of shipments to the U.S.: maritime cargo bookings from China to the U.S. fell between 30% and 60% in April. This abrupt drop in trade flows confirms that the barriers have been effective in isolating China from the North American market, at least temporarily.
However, Asian factories—especially Chinese ones—have shown resilience and cunning in continuing to "win market share" through other means. Faced with obstacles to direct access to the U.S., China has redirected its exports to third countries and emerging markets. A clear example is Mexico: the flow of components and raw materials from China to Mexico has surged, growing 33% in 2023 and another 26.2% between January and July 2024. Many Chinese manufacturers are opening plants on Mexican soil or shipping parts for assembly there, so the final product enters the U.S. labeled as "Made in Mexico." This process of Chinese companies nearshoring in Mexico changes the "economic nationality" of goods and allows them to circumvent tariffs as regional products. The trend is so pronounced that analysts describe Mexico as a "backdoor" for Chinese goods into North America. In fact, in May 2024, a historic record was set for containers shipped from China to Mexico, confirming this supply chain diversion.
At the same time, China has intensified its manufacturing presence in other Asian countries to diversify risks. Since the first tariff war (2018–2019), Chinese companies expanded production in Vietnam, Indonesia, Malaysia, and other neighbors, taking advantage of lower wages and trade agreements. Some of these nations (e.g., Vietnam) gained share as U.S. suppliers during the initial phase of the trade war. But Washington's recent offensive of "reciprocal" tariffs also reached several Indo-Pacific partners, putting the China+1 strategy in check. This year, the U.S. has demanded that its allies and trade partners reduce ties with China as a condition for avoiding higher tariffs. It is no surprise that countries like Vietnam or Thailand are now carefully managing their advantages: the 90-day tariff pause in 2025 revealed that if China manages to reduce its export costs (even temporarily), those countries could lose competitiveness unless they negotiate better deals with the U.S.. Indeed, Vietnam is already exploring a more favorable bilateral agreement, and others are seeking to highlight their USMCA compliance (in Mexico's case) to hold onto the ground they've gained.
On the domestic front, China is preparing for an era of prolonged trade confrontation. Beijing has shown a combination of firmness and adaptability: refusing to confirm alleged negotiations if they don't exist, while keeping "the door open" for dialogue. Meanwhile, it is diversifying its imports and exports away from the U.S., strengthening ties with the so-called Global South. Since 2018, China increased purchases of soybeans and energy from Brazil, the Middle East, and other alternative suppliers. This mitigates the impact of losing American purchases of grains or hydrocarbons: Chinese officials assure that they can meet their agricultural and energy needs without U.S. products. The Chinese government has also launched diplomatic and trade initiatives to consolidate markets in Asia, Africa, and Latin America, seeking to offset reduced American demand. It is worth noting that only ~3% of China's GDP depends directly on exports to the U.S., so a decline on that front, while significant, is manageable if domestic growth and other markets hold up.
Despite everything, China's position in global manufacturing remains dominant. Its enormous industrial ecosystem, infrastructure, and technological capability cannot be easily replicated. Experts estimate that Trump's new tariffs could shave up to 2.4 points off China's GDP growth, but even so, China maintains its official target of 5% annually and trusts in internal resilience. Moreover, the U.S. continues to depend on China in critical areas: approximately 60% of the strategic minerals the United States imports (key inputs for clean energy, batteries, and military technology) come from China. This asymmetric interdependence—China can seek to source food or energy from other markets, but the U.S. would struggle to replace Chinese mineral inputs in the short term—means that Beijing retains bargaining power. In summary, China is "weathering the storm" by strengthening relationships with other countries and exploiting cracks in U.S. strategy. Although it has ceded immediate ground in North America, the "Asian dragon" remains very much present globally, adapting to continue being the world's factory in the new normal.
India: The Next Great Factory or a New Front of Tension?
India has emerged in recent years as a natural candidate to benefit from the global manufacturing realignment. In Washington, many see India as a strategic partner for the "friendshoring" policy—shifting supply chains to friendly nations—in order to reduce dependence on China. In fact, in early 2025, there was talk of a possible U.S.-India trade agreement to incentivize American companies to invest in India and thereby create an alternative to the Chinese "giant." India's advantages include an enormous and young population, low labor costs, and cultural and linguistic affinity with the West. Multinational companies have already begun moving operations to India in sectors like consumer electronics: for example, Apple accelerated iPhone manufacturing in India as part of its pivot away from China. These trends suggest that India could capture a larger share of global production in the coming years.
However, experts agree that India cannot replace China in the short term as "the world's factory." There are structural obstacles: insufficient infrastructure, bureaucracy, and lesser technical and industrial capabilities compared to China. "In the short term, in terms of expertise and infrastructure, India cannot fill China's shoes," stated an international markets analyst. India still faces challenges in scaling its manufacturing in key areas such as textiles, automotive, and electronics to the required level. In the best-case scenario, India could grow as part of a long-term plan, but there is no "shortcut" to replicate decades of Chinese industrial development. At its core, the U.S. bet on India is not only economic but geopolitical: integrating India more into the American orbit prevents "handing it on a silver platter" to a China-Russia alliance. Washington values that India, despite its historic non-aligned stance, shares democratic principles and rivals China in Asia. Even so, for now, India functions more as a complement than a replacement for China in global supply chains.
Paradoxically, in 2025, India has also found itself embroiled in trade frictions with the U.S., reflecting the complexity of the chessboard. The Trump administration, focused on punishing ties with adversaries, turned its sights on New Delhi when India continued buying Russian oil. In August, the U.S. imposed an additional 25% tariff on imports from India as retaliation for those crude oil purchases, raising total levies on Indian products to as high as 50%. This move surprised and angered India: the Narendra Modi government called the new American tariffs "unfair and unreasonable" and immediately explored retaliatory actions. In fact, for the first time, India formally notified the WTO of possible retaliation against the U.S.—suspension of equivalent tariff concessions—in response to the 25% tariffs Washington maintained on Indian steel and aluminum. This firmer stance from New Delhi contrasts with its earlier caution (recall that India had postponed retaliation during the first trade war). Now, facing Trump's onslaught, India is adopting a more assertive posture to defend its interests.
In sum, India finds itself in a dual position. On one hand, it is seen as a potential winner from the global industrial reordering: major multinationals are announcing investments there, and the country shows solid economic growth (projected at ~6% annually, above the global average). On the other hand, it also suffers the ripple effects of the trade war, as it has not fully aligned with Western policy (its foreign policy autonomy regarding Russia has cost it trade sanctions). India is likely to continue receiving significant productive investments in sectors such as electronics, pharmaceuticals, automotive, and textiles as companies diversify their factories away from China. But it will also need to negotiate carefully with the U.S. to avoid becoming the target of further punitive measures. In analysts' words, India "will not be able to fill the Chinese void" in the short term, but it can emerge stronger from these trade wars if it manages to attract productive capital without isolating itself commercially. Its challenge will be to become a complementary manufacturing power, navigating between opportunity and geopolitical pressure.
Retail Chains Under Pressure: Shortages, Costs, and Adaptation
The tariff turbulence has had a major impact on retail chains, both in the United States and Mexico. Retailers—from multinational giants to small businesses—have had to contend with rising costs, supply shortages, and changes in their sourcing. In the United States, retail companies have spoken out about the direct consequences of elevated tariffs on China. In late April 2025, executives from the two largest U.S. retailers warned that the new tariffs (145% on Chinese products) could leave "empty shelves" in the coming months. This alarm is reminiscent of the worst moments of the pandemic, but now the cause is customs-related, not health-related. Since the massive tariff took effect, many American companies canceled orders from Chinese suppliers, paralyzing inventory flows. Port data confirms the decline: May traffic at the Port of Los Angeles is projected to be 33% lower than the previous year due to the collapse of Chinese imports. The National Retail Federation (NRF) estimates that if the tariffs are maintained, total goods imports to the country would fall 20% in the second half of 2025, with a strong impact on seasonal categories. Among the products at risk of shortages, retailers list:
Footwear and apparel (from sneakers to basic clothing)
Toys and school supplies (categories sensitive to back-to-school and Christmas seasons)
Low-cost electronics (affordable devices and accessories, mostly manufactured in Asia)
Imported perishable food products (for example, certain juices or seafood)
For American consumers, this signals less variety and higher prices on everyday items. In fact, facing diminished supply, the largest U.S. retailer announced it will be forced to raise prices across several departments. Margins at major chains are tightening: one of the large retail chains reported significant earnings pressure from the combination of tariffs and lower store traffic. In other words, retailers are also "paying a price" for the trade war, not only in costs but in operational adjustments.
In response, chains have accelerated the diversification of their suppliers and the relocation of their sourcing. U.S. retailers began seeking manufacturers in other countries (Vietnam, India, Mexico) or increasing domestic purchases as early as 2019, but the 2025 escalation redoubled this urgency. Industry voices indicate that the largest companies in the U.S. retail industry will maintain their plans to shift production away from China despite any temporary truce. Even with the 90-day tariff pause granted in May, many retailers remained cautious: they took advantage of the window to front-load tariff-free imports (filling warehouses in the short term) but do not trust in a lasting solution, so they continue seeking alternative suppliers. In some extreme cases, small brands have opted to suspend sales to the U.S. or temporarily absorb costs, fearing future volatility. In short, North American retail chains are restructuring their logistics networks to survive in an environment where depending on a single country (China) is far too risky.
In Mexico, the impact on retailers has different dimensions. On one hand, the government's measures to promote nearshoring also include closing gaps through which cheap Asian products were entering and competing with local goods. An emblematic case is that of Asian online stores like Shein and Temu, which became hugely popular by selling clothing and low-cost goods directly from China to Mexican consumers. Starting January 1, 2025, Mexico imposed a general 19% tariff on all e-commerce packages from countries without trade agreements (such as China). In parallel, courier shipments from the U.S. and Canada were set at 17% if they exceed $50. These new rules effectively eliminate the low-value exemption that previously allowed Asian platforms to flood the market without paying taxes. Additionally, in December 2024, tariff increases of up to 35% were decreed on product categories including clothing (dresses, shirts), home textiles (blankets, curtains), and even camping tents. The stated objective was to prevent undervaluation and unfair competition, ensuring a "level playing field" for Mexican companies and protecting local jobs. Authorities noted that many items were evading taxes or being priced artificially low, harming the domestic industry without truly making things much cheaper for the end consumer.
These measures certainly affect retailers and consumers in Mexico. Shein and Temu, e-commerce import giants, are particularly vulnerable to the new tariffs. Their business model—very cheap products shipped directly from Asia to the customer—loses part of its appeal when each package incurs a 19% tax. This could translate into higher prices or reduced selection on those platforms, and possibly a reduction in their market share in favor of local stores or established chains. In fact, competition is being somewhat leveled for traditional retailers (including subsidiaries of the two most iconic global retailers in Mexico and others) that were already paying full taxes on imported merchandise. In the short term, Mexican consumers may notice that certain imported "bargains" are no longer so cheap. However, the government's intention is for that demand to be redirected toward products made in Mexico or from USMCA partners, strengthening the regional supply chain. It remains to be seen whether domestic production can quickly fill the gaps left by more expensive imports—otherwise, inflationary pressures could emerge in categories such as clothing or footwear.
A side effect worth monitoring is the interaction with Mexico's IMMEX (maquiladora) program. Some experts have warned that the new Mexican tariffs, if not applied carefully, could disrupt schemes where foreign companies import duty-free inputs to assemble in Mexico and re-export. In other words, measures designed to curb finished consumer goods (for example, Chinese clothing sold at retail) could inadvertently hit manufacturers importing components for production in Mexico (for example, fabrics for garment-making domestically). So far, authorities have indicated that their target is abusive practices and evasion, not hindering export-oriented manufacturing. Nevertheless, it is a delicate balance: protecting domestic industry without scaring away foreign manufacturing investment.
In summary, retail chains in Mexico and the U.S. are adapting under intense pressure. In both countries, retailers face the challenge of keeping their shelves stocked without fully passing on the tariff blow to consumers. In the U.S., this means diversifying suppliers, rethinking prices, and possibly accepting slimmer margins to avoid losing customers. In Mexico, it means adjusting product lines and seeking domestic or regional sourcing to fill the spaces once occupied by cheap imports. If the trade war has made one thing clear, it is that the retail sector—the one closest to the end consumer—is an immediate barometer of its effects: from empty or full shelves to the prices we pay for clothing, toys, or everyday groceries. Stores find themselves on the front lines of this global trade battle, reinventing their strategies to keep operating in a world of elevated tariffs and commercial uncertainty.
A New Manufacturing Order Under Construction
As of late summer 2025, the global trade landscape is far from normalized. The U.S.-China tariff "pause" is expiring and there is still no definitive agreement, foreshadowing potential re-escalation in the short term. The trade war has lasted long enough to reconfigure international supply chains, but not long enough to resolve the underlying tensions. In this landscape, Mexico continues to bet heavily on nearshoring, attempting to consolidate its position as the big winner of the superpower rivalry. It has achieved notable progress—more investment, greater participation in the U.S. market—but faces the challenge of maintaining business confidence amid political swings. Its factories could become pillars of a new integrated North American manufacturing base, provided the North American trade environment regains stability and USMCA rules are upheld without disruptions.
Meanwhile, Asian factories are not defeated—they are evolving. China and other countries in the region have demonstrated adaptability: relocating plants, seeking alternative markets, and negotiating when possible. China retains its global industrial weight, though with a role adjusted to the new multipolar reality of "friendshoring" and partial "decoupling." India is emerging as a key piece of the future puzzle, aspiring to a greater role in world manufacturing, but it will need to overcome domestic obstacles and navigate its relationship with Washington. And retailers—those final links in the chain—will continue to push for certainty and reasonable costs, since both their businesses and the wallets of millions of consumers depend on it.
The big question that remains open is whether we are heading toward a system of more regionalized trade blocs (North America, Europe, Asia) or whether there will be room to rebuild global trade rules. For now, the tariff "war" has given way to a kind of new commercial Cold War, where economic security is intertwined with geopolitical considerations. Mexico, in particular, walks a fine line: it seeks to seize the moment for industrial development without getting caught in the crossfire between great powers. The coming months will be crucial. One thing is certain: based on what is known today, the impacts of this trade war continue to evolve and shape a new manufacturing order whose ultimate winners and losers have yet to be determined.