Mexico’s footwear industry could benefit from US tariffs. But it’s not

For more than 15 years, Juan Alvarado has owned a small shoe manufacturing company in Leon, Guanajuato, Mexico’s capital, for the past 15 years. However, he is being forced to consider diversifying into other sectors or simply shutting down his business because of the current political and trade tensions in US-Mexico relations, as well as tariff-related disruptions.

Alvarado stated to Al Jazeera that he would typically employ up to 25 people, but he has since been forced to reduce that number to 15. You can’t hold on either way because you’re up against a wall. And everything depends on the amount of money.

After President Claudia Sheinbaum and Donald Trump agreed to a 90-day extension, which is scheduled to expire on October 31st, negotiations are raging about Mexico’s tariff rate. Mexico is still subject to a 25% tariff on cars, a 50% tariff on steel, aluminum, and copper, and a 25% tariff on anything that is not covered by the US-Mexico-Canada Agreement’s (USMCA) 2020 Free Trade Agreement.

The US’s tariffs on other countries are seen as a benefit for Mexico’s top trading partner as it struggles to gain a stronger foothold in areas like footwear, which has traditionally faced declining competition from Asian nations for decades.

The State of Guanajuato (CICEG)’s Chamber of the Footwear Industry recognizes the volatility that US tariffs can cause, but Juan Carlos Cashat Usabiaga, president of the organization, claims that Mexico is currently being favored because some of its exports are covered by USMCA.

He told Al Jazeera, “I truly believe that these tariffs being imposed on other nations are advantageous.” You can still export to the United States while adhering to the USMCA regulations, if you speak exclusively of footwear. That is, you will receive zero percent tariffs if you follow the rules. In contrast to other countries that are subject to tariffs of 20, 30, 40, or 50%, our nation is really very competitive.

Trump’s tariffs, which aim to boost the country’s economy, have had a negative impact. Small business owners like Alvarado claim that their investments are being hampered by the current geopolitical environment and inflation, while others in Mexico view these disruptions as a window of opportunity.

For a US-based export company, Alvarado’s business used to produce shoes. Despite USMCA, demand has decreased as a result of uncertainty surrounding tariffs, which has forced Alvarado to halt all orders.

Production has been stopped for the moment. According to him, they were producing about 2, 000 pairs of shoes per week, of which Alvarado was supplying about 2, 000 pairs. That really helped my company, she said. ]But] now they are making 800, 700 pairs”.

Alvarado has recently expanded a new sales channel by mailing shoes directly to US customers in addition to manufacturing for larger companies. Following the US government’s decision to end the “de minimis” exemption, which allowed packages worth less than $800 to enter the US tariff-free, Mexico also suspended package shipments.

Imports from China

More than 75% of Mexico’s production is concentrated in Guanajuato, making it the ninth-largest producer of footwear worldwide. According to Cashat, Chinese dumping practices and importations have had a significant impact on the sector.

According to Cashat, “We’ve seen a shocking decline in production and jobs, which has an impact on the GDP of the sector.”

214 million pairs of shoes were produced in Mexico last year. Production reached 134 million pairs by the end of August this year, according to CICEG’s data, which came from Mexico’s national statistics agency. By the end of August, the number of workers in the sector had dropped by 411 from a year earlier, to 96, 929.

The IMMEX program, which was introduced in 2006 to facilitate the temporary import of materials intended for re-exportation after processing, has recently been withdrawn by the Mexican government. The improper use of the program to import finished goods, especially shoes and textiles from China, has for decades caused unfair competition and tax evasion in Mexican businesses, as well as decimating the local economy.

According to Marcelo Ebrard, Mexico’s economic secretary, shoe production decreased by 12.8 percent between 2019 and 2024, largely as a result of companies’ poor IMMEX program use. The temporary pause on imported finished shoes is intended to boost national production, combat contraband, and safeguard the livelihoods of 130, 000 direct and many more indirect employees, according to Ebrard.

Mexico also revealed its intention to impose its own tariffs on certain imports from nations without free trade agreements, including China. These actions are a part of Plan Mexico, a national strategy intended to boost economic growth and advance Mexico’s position in global value chains.

These tariffs and the IMMEX pause are significant incentives for the industry to compete on an equal playing field, according to Luis Rodriguez Tirado, CEO of Hormas El Arbol, a company that has been producing shoes for 90 years.

“We can compete with any other nation,” the statement read. I’m okay with them beating us, but only on equal terms, he said.

Some analysts see these measures as merely a response to the intense pressure the Mexican government is facing from Washington, DC, as opposed to as a genuine effort to stop illegal imports.

To support their businesses and make a living, workers in Mexico’s vast informal sector rely heavily on cheap Chinese goods.

According to Professor Renato Balderrama of the Center for Economic Research and Teaching (CIDE), it is difficult for any government to “clean up customs,” despite good intentions, because goods like shoes and textiles frequently enter illegally.

“Mexico’s economy is largely unorganized, accounting for half of its.” Therefore, he continued, “people either starve or sell drugs if you block that income.”

Balderrama added that Mexico needs to diversify its exports, particularly in Asia.

The Pacific Rim and South Asia are the two markets where growth has been and will continue to grow. And this is when we are breaking up with China and growing more dependent on the US.

manufactured in Mexico

The shoe manufacturer Alvarado describes Chinese imports as a “cancer” that has been affecting the sector. He adds that due to the involved governmental bureaucracy and a lack of financial support, small business owners are having more trouble navigating these challenging times.

Plan Mexico appears promising on paper, but experts and industry insiders concur that its success depends largely on its financial support and integral implementation.

According to Balderrama, “the strategy has yet to be fully realized” and needs to be given the resources needed for the enormous task that lies ahead.

However, according to Cashat, it is preferable to implement an integral plan to recover what has been lost in recent years rather than to start from scratch. It has a lot to offer, according to the industry. Companies are currently operating at about 55% of their production capacity, he continued.

Rodriguez agrees that the footwear industry needs to be restructured despite recent government initiatives. Priorities should be given to small and medium-sized businesses, including promoting and strengthening them, as well as addressing the informal sector.

In order for those under investigation to become formal and have better funding and planning, he said, “it would be necessary to include those informal businesses that are being evaluated.”

Alvarado’s business was robbed a year and a half ago. Organized crime and gang activity are present in Guanajuato, which poses significant security challenges. These issues cause theft, extortion, and reduced sales for both small and medium-sized businesses. He requested government funding for microbusinesses, but after learning that the application process would take more than a year, he was forced to take out a bank loan to pay it back and keep operating.

Source: Aljazeera