The Federal Reserve Board published research on how the 2018-19 U.S.-China tariff hikes reshaped trade through Mexico. The study finds that about 53% of Mexico’s export gains to the U.S. were driven by the tariffs on China, while direct Chinese transshipment through Mexico was negligible. Instead, around 14 percentage points of Mexico’s total export gains appear consistent with Chinese production or processing in Mexico, with the rest of the tariff-related shift coming from other sources of trade diversion. Using a decomposition framework, the research separates Mexico’s export gains into tariff-driven diversion, underlying trend growth, China-related backdoor activity, and other factors. Trend growth accounted for 35% of the increase and other factors, including post-pandemic demand for autos, for 12%. The remaining 38% reflected diversion from sources other than China, including Mexican firms and U.S. and other foreign multinationals operating in Mexico. Supporting evidence included stronger growth in Mexico’s exports of goods targeted by the U.S. tariffs, rising Chinese greenfield investment and exports to Mexico in the same sectors, and input-output data showing Mexican value added in exports to the U.S. grew faster than Chinese inputs, which the paper says is inconsistent with large-scale transshipment. The authors note that the estimates are bounds rather than precise measures because they rely on trade data rather than firm ownership data. The paper says the 2018-19 episode is a benchmark for the current tariff environment, where U.S. tariffs have been broader and higher since 2025. It notes that these conditions could intensify both supply chain relocation and backdoor activity, and points to the July 2026 USMCA review as a key policy juncture because stricter rules of origin could disrupt integrated North American supply chains if they do not distinguish between transshipment and genuine relocation.
Federal Reserve Board2026-06-05
Federal Reserve Board research finds US tariffs on China drove 53% of Mexico’s gains in the US market with Chinese production in Mexico accounting for 14%
The Federal Reserve Board published research on how the 2018–19 U.S.-China tariff hikes reshaped U.S. trade through Mexico, finding that about 53% of Mexico’s export gains to the U.S. were tariff-driven, with negligible direct Chinese transshipment. About 14 percentage points of Mexico’s gains appear consistent with Chinese production or processing in Mexico, while the rest reflects trend growth, post-pandemic demand, and diversion from non-Chinese sources. The paper highlights this episode as a benchmark for the post-2025 tariff environment and flags the July 2026 USMCA review as a key juncture for rules of origin and supply chain relocation.