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(Bloomberg) — First came the raid on a Mexico City shopping center known for selling Chinese-made clothing, toys and electronics. Then, last month, tariffs of almost 20% on packages from foreign e-commerce companies including Temu and Shein Group, and even higher duties on some textiles.

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The highly publicized measures are all part of Claudia Sheinbaum’s crackdown on cheap Asian — and particularly Chinese – imports, as the Mexican President seeks to ally her country with the incoming US administration just days before Donald Trump takes office. 

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Her strategy came together this week with the announcement of ‘Plan Mexico,’ a sweeping package of incentives for companies to rely on domestically produced goods and focus on supply chains with the US and Canada.  

Sheinbaum’s gambit is designed to ward off Trump’s threatened 25% tariff on all Mexican goods, a de facto repudiation of the free-trade agreement negotiated during his first term. It’s also a bid to convince Trump that Mexico, like the US, is a victim of unfair trade practices by China rather than part of the problem. 

After years of increased imports and rising Chinese foreign investment in Mexico, Sheinbaum, who’s been in office for only four months, is aiming to reverse course. 

A government official, who asked not to be named, said that the policies were intended to protect local jobs and domestic production, but that Sheinbaum’s administration knew the narrative would be useful ahead of Trump’s second term. The incoming US president has said the tariff may be necessary to pressure Mexico to clamp down on migrants and illegal drugs coming across the border.

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But while the new rules have been welcomed by many local manufacturers, they’re bad news for as many as half a million workers at warehouses and factories along the US-Mexico border, which act as duty-free intermediaries for shipments from countries around the world.

On Friday, the European Union and Mexico also agreed to a revamped free-trade agreement, aiming to boost both trade and economic security on a relationship that totalled €81.7 billion ($84 billion) in bilateral trade in goods in 2023.

Doubled Trade

China’s trade with Mexico has doubled from a decade ago, reaching $139 billion in the 12 months through November, according to data from Mexico’s central bank. Chinese companies have set up manufacturing plants for furniture and plastics near the US-Mexico border, and annual investment is now in the hundreds of millions of dollars, versus tens of millions just a few years ago. The country is also a big supplier of both synthetic and cotton fabrics to Mexico, displacing local suppliers who can’t compete on price.

The relationship is still dwarfed by trade with the US, which guzzles up close to $500 billion in Mexican exports a year. And Mexico’s relationship with China is lopsided, with Mexico importing about 13 times what it sells – and ultimately shipping many of those goods on to the US. 

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Warehouses along the border advertise themselves as an easy way for businesses to avoid both Mexican and US tariffs, made possible due to a loophole that allows companies to ship in bulk and then deliver individual packages to American shoppers.

Mexico has also accused some firms of selling goods in the local market that were imported duty-free on the condition that they be re-exported.

To reverse the trend, new rules impose tariffs of as much as 35% on finished clothing from countries with which Mexico doesn’t have a free trade agreement – such as China – and as much as 15% on materials. The 19% duty on deliveries from courier companies is likely to hit e-commerce giants like Temu and Shein particularly hard.

The tariffs are the culmination of public efforts that began in November, with raids on Chinese-owned stores including Mega Oriental and Mall Chino. This month, armed soldiers lined up outside one shopping mall as government agents raided rows of Asian-made Pikachu toys, bubble-blowing plastic guns and kitchen equipment, hauling them out in black garbage bags and claiming the items should be considered contraband.

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In total, officials have seized some $24 million of goods in the raids, said Luis Enrique Vazquez Rodriguez, technical secretary for the Economy Ministry’s foreign trade office.

Restoring Jobs

Sheinbaum’s goal is for clothing and shoes to be made with at least 50% Mexican materials by 2030, which would require more synthetic fiber to be produced in Mexico. Her government said the shift would restore 49,000 jobs lost in recent years, as consumers shopped more online and hunted for bargains among resellers of e-commerce firms’ discounted deals.

Blutec SA de CV, which sells machinery to local textile makers, is located in the heart of Mexico’s textile industry in Puebla State. In recent years, it’s been marketing its products outside of the country’s clothing industry, to auto suppliers and agricultural firms, to make up for a drop in sales.

“There’s factories that technically aren’t closed, but they aren’t producing even a kilo,” said Daniele Uslenghi, the company’s chief executive officer. “If the machines are stopped, they’re not buying any more.” For Uslenghi, Sheinbaum’s tariffs were a sign that relief could be on the way.

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Not so for Alejandro Jaramillo Osuna, the president of the Tijuana chapter of CANACINTRA, the national chamber for the manufacturing industry. He said that companies from medical-equipment suppliers to furniture makers have already calculated their costs based on the rate of materials coming in from abroad, and the overnight changes could have a bleak effect.

“Sometimes you don’t see the collateral damage,” he said. “The supply chain for any of these industries requires, in the best case months and sometimes years to be restructured.” He estimated half a million jobs could be affected by the changes, and in the worst-case scenario, lost.

Companies that had relied on Mexican warehouses to temporarily store clothing imports have already started searching for space elsewhere. US-based logistics firm Flexport Inc. has been fielding requests for space in its large US warehouses. Its CEO, Ryan Petersen, said that companies had turned to Mexico in the first place after Trump imposed tariffs on China in his first term.

“A lot of American companies are importing goods under this program to Mexico and fulfilling orders in the United States one parcel at a time,” said Petersen. “It’s been a scramble for a lot of good, well-known brands in the US to have to set up new fulfillment centers.”

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Auto Industry

Mexican officials are making sure that news of their efforts reaches Washington. Luis Rosendo Gutiérrez, the country’s top trade negotiator, has traveled to the US capital about once a month since taking office in October. In early December, he told a gathering of business executives, including a representative from the US Chamber of Commerce, that Mexico is well positioned to work with the US to compete against Asia. “Together we’ll be stronger,” he said.

What’s less clear is whether Sheinbaum can make a dent in the bigger-ticket items Mexico imports from Asia, though she wants to try. This week’s announcement targeted imports from Asia of everything from generic medicine to carbon fiber. Trump has also accused Mexico of being a back-door for Chinese autos, a claim that Mexico has vigorously denied, pointing out that the nation’s factories make almost no cars for Chinese brands.

Still, Mexico has asked top automakers to swap Asian-made components out of their cars. Francisco González, executive president of the National Auto Parts Industry Association, said that while less than 3% of components and parts sold in Mexico are imported from China, at least for now it’s impossible to source all the materials for electric-vehicle batteries — one of the more valuable components of a car — locally.

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“No one in North America has everything,” he said. “We will continue to import lithium, purified and ready to use, as well as carbon and graphite, because we still don’t have these inputs. It will take us a few years to get them.”

Despite the efforts, it’s not certain that cracking down on China will be enough to convince Trump — who’s reiterated that his focus is on undocumented migrants and fentanyl rather than the legal goods trade — to hold off on tariffs.

“It’s very smart of Mexico to demonstrate it’s willing to take action with trade in the region with China,” said Greta Peisch, a partner at law firm Wiley Rein who served as the top trade lawyer for the US Trade Representative’s office under President Joe Biden. But “taking action with China may not be enough to address bilateral concerns.”

—With assistance from Amy Stillman.

(Updates with Mexico-EU trade agreement in eighth paragraph.)

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