Mexico is emerging as a key beneficiary of US tariff-driven trade shifts, as importers diversify away from China, according to BBVA Research.

Mexico is emerging as one of the main beneficiaries of changes in US import patterns triggered by higher tariffs, as companies redirect sourcing away from China and toward countries with closer trade ties, competitive manufacturing bases and preferential access to the US market, according to BBVA Research.

The analysis found that US imports declined by approximately 2% for every percentage-point increase in the tariff applied to a particular product and country. Based on an average tariff increase of about seven percentage points, BBVA estimates that directly affected imports could have fallen by roughly 14%.

Rather than reducing overall US demand for foreign goods, however, tariffs have largely changed where those goods come from. Mexico, Taiwan, Vietnam, Thailand, India, and Indonesia have gained market share as US buyers seek alternatives to Chinese suppliers.

“The results suggest that tariffs have had a significant negative impact on imports from the countries and sectors directly affected,” says BBVA Research. At the same time, the institution noted that trade diversion has allowed other economies to expand their exports to the United States.

Mexico Benefits From Trade Diversion

Mexico’s position is supported by its geographic proximity to the United States, established manufacturing supply chains and preferential treatment under the USMCA. BBVA’s findings state that Mexico was among the countries that increased shipments to the United States as tariffs reduced the competitiveness of imports from China. Growth was particularly visible in sectors linked to rising US demand for AI infrastructure, electronics, and advanced manufacturing.

AI-related investment has driven demand for products such as servers, data-processing equipment, electrical components, and specialized machinery. Mexico and Taiwan were among the economies that benefited from this expansion, although Taiwan remains more deeply integrated into semiconductor and advanced-electronics supply chains.

For Mexico, the shift creates opportunities to expand beyond its traditional strength in automotive manufacturing. Electrical equipment, data-center components, machinery, and electronics assembly could gain importance as companies seek to shorten supply chains and reduce exposure to tariff and geopolitical risks.

Mexico has already become the United States’ largest trading partner in goods, overtaking China as the main source of US imports in 2023. Its role has continued to expand as manufacturers reorganize production across North America.

Mexico’s ability to capture a larger share of redirected trade will depend on whether it can address infrastructure, energy, security, and regulatory constraints. Industrial growth has placed increasing pressure on electricity supply, water availability, border crossings, roads, and logistics facilities in several manufacturing regions.

Tariffs Change Suppliers, Not Demand

The BBVA study suggests that the tariffs imposed by the Trump administration have been more effective at changing suppliers than at reducing the overall US trade imbalance. When imports from one country become more expensive, US companies may turn to suppliers elsewhere rather than replacing foreign products with domestic production. This process, known as trade diversion, benefits countries capable of offering similar goods at competitive prices.

The results also show that the effect of each additional tariff increase becomes smaller once tariffs are already high. Early increases can significantly reduce trade, but further increases may produce diminishing effects because many companies have already changed suppliers or adjusted their operations.

BBVA based its analysis on US import and effective-tariff data from the US International Trade Commission. The study covered 42 countries, representing more than 94% of US imports, across 11 industrial categories.

Researchers compared average trade flows from May 2025 through April 2026 with 2024 levels. The econometric model included 419 country-sector observations and sought to isolate the relationship between tariff changes and imports.

The impact varied across industries and trading partners. Countries with limited capacity to replace Chinese products, weak logistics links, or insufficient manufacturing infrastructure were less able to take advantage of the shift.

Asia and Latin America Compete for New Investment

Asian economies have captured a significant share of production displaced from China. Vietnam, Thailand, India, and Indonesia offer expanding manufacturing capacity, relatively competitive labor costs, and growing integration into global electronics and consumer-goods supply chains.

Taiwan has benefited from strong demand for advanced technology and AI-related equipment. Its semiconductor ecosystem gives it an advantage in products that are difficult to source from alternative markets.

Latin America could also benefit, but the gains are likely to remain concentrated. Mexico is the region’s best-positioned economy because of its proximity to the US market, extensive industrial base, and USMCA access.

Other countries could attract investment in selected sectors. Brazil has opportunities in commodities, agriculture, and industrial production, while Chile and Peru remain important suppliers of minerals needed for electrification and technology. Costa Rica and the Dominican Republic could benefit from medical devices, electronics, and specialized manufacturing.

However, capturing redirected investment requires reliable infrastructure, skilled workers, regulatory stability, affordable energy, and efficient access to ports and major consumer markets. The tariff environment also creates risks for companies that rely on imported inputs. Higher duties can increase production costs, generate uncertainty and complicate long-term investment decisions, even in countries that gain export market share.