Industry News
Mexico Ends Border-Skipping Loophole Frequently Exploited by E-Commerce Companies
Mexican President Claudia Sheinbaum has issued a decree that effectively ended the popular “border-skipping” strategy many U.S. e-commerce sellers used to avoid tariffs on Chinese goods. This decision, which was announced on December 19 and took effect immediately, primarily targets apparel imports and is set to have far-reaching consequences for the industry. For years, U.S. companies have been importing goods from China to Mexico, shipping them one order at a time to the U.S., effectively avoiding tariffs under the Section 321 provision. This loophole allowed for duty-free entry of shipments valued at $800 or less, making it an attractive option for e-commerce businesses looking to minimize costs.
Importers could avoid these tariffs and ship to Mexican warehouses as fulfillment hubs for low-cost finished products that are then sent directly to U.S. consumers.
Before the December 19 ban, apparel imports under the IMMEX (Manufacturing, Maquiladora, and Export Services Industry) program were given a “Made in Mexico” designation from U.S. Customs.
Both Chinese companies and European companies that once manufactured products in China are now diversifying supply chains by manufacturing in Mexico, a trend that can be seen in the number of containers transporting Asian raw materials and components into Mexico.
From January to August 2024, China to Mexico trade was up 22% year over year, on top of a 33% increase in trade in 2023. This trend contributed to the designation of Laredo, Texas, as one of the busiest ports in the U.S. in 2024.
There’s no discounting the impact these tariff increases are having on companies. And while controlling import costs immediately is important, this is an opportunity for company leaders to challenge their current approach, take stock of their entire supply chain, and find ways to optimize through long-term strategic partnerships that provide tangible cost savings and efficiency gains.”
The border-skipping strategyThe reliance on the “border-skipping” strategy was substantial among U.S. e-commerce companies, with many opting to fulfill orders to U.S. consumers from Mexico. This approach enabled businesses to leverage Mexico’s advantageous cost structures, including lower labor costs and the ability to avoid U.S. tariffs, thereby enhancing profit margins. The strategic location of Mexican warehouses allowed for effective 321 fulfillment, providing seamless delivery experiences to U.S. customers as if the items had been shipped domestically.
The increased tariffs and cessation of duty-free imports puts apparel brands in a scramble to find alternative fulfillment solutions and consider shifting strategies from nearshoring via Mexico to reshoring their operations in the U.S. This is costing companies money today, and even if there is a postponement on tariffs, it’s not a winning strategy for companies to just wait and see what happens.”
Companies capitalized on this by importing Chinese goods into Mexico, which were repackaged and sent across the border to the U.S. through Section 321, thus benefiting from the duty-free threshold. This method offered significant cost savings and operational efficiency, making it particularly popular among some of the largest e-commerce platforms targeting the U.S. market. However, the new decree marks a turning point, compelling these companies to promptly reevaluate their logistics and operational strategies.
The U.S., Mexico’s neighbor to the north, as part of the United States-Mexico-Canada Agreement, will be exempt from the import hikes, which will jump to 15% on 17 categories of textile merchandise, including denim and polyester staple fibers, and 35% on 138 finished clothing products such as knitwear, jackets, and lingerie, Mexico’s economy minister Marcelo Ebrard announced.
The increased tariffs and cessation of duty-free imports puts apparel brands in a scramble to find alternative fulfillment solutions and consider shifting strategies from nearshoring via Mexico to reshoring their operations in the U.S. This is costing companies money today, and even if there is a postponement on tariffs, it’s not a winning strategy for companies to just wait and see what happens.”
Companies capitalized on this by importing Chinese goods into Mexico, which were repackaged and sent across the border to the U.S. through Section 321, thus benefiting from the duty-free threshold. This method offered significant cost savings and operational efficiency, making it particularly popular among some of the largest e-commerce platforms targeting the U.S. market. However, the new decree marks a turning point, compelling these companies to promptly reevaluate their logistics and operational strategies.
Key changes in the decreeThe new decree introduces several significant changes:• Tariff increases: Import duties on 121 apparel products and 17 made-up textiles have been raised from 20-25% to 35%. Additionally, 17 tariff headings related to textiles now face a 15% duty, up from 10%.• IMMEX program restrictions: The decree excludes certain finished products, including clothing and textile articles classified under HTS Chapters 61, 62, and 63, from temporary importation under the IMMEX program.• Immediate effect: These changes are effective immediately, affecting even goods currently in transit.
Impact on the IndustryThis sudden policy shift is expected to have significant implications:• U.S. e-commerce sellers: Many large U.S. e-commerce sellers who relied on this strategy to circumvent tariffs urgently need to reconsider their supply chains.• Mexican manufacturing: The move aims to boost domestic textile and apparel manufacturing in Mexico, potentially creating more jobs in these sectors.• Supply chain disruptions: Companies with goods already en route to Mexico may face unexpected customs duties, leading to potential short-term disruptions.
Strengthening domestic employmentSheinbaum’s decision can be seen as a strategic move to bolster the domestic labor market. By curbing the flow of Chinese goods circumventing tariffs through the “border-skipping” loophole, the decree intends to reinvigorate the Mexican textile and apparel manufacturing sectors. The government aims to generate vast employment opportunities that vastly outsize benefits derived merely from acting as logistics hubs for U.S. companies.
What’s next for retailers and importers?U.S. companies relying on this strategy will need to adapt quickly:• Reassess supply chains: Businesses may need to explore alternative sourcing options or consider shifting production to other countries.• Cost structure review: Companies must likely reevaluate their pricing strategies to account for increased import costs.• Explore alternative strategies: Some businesses may consider leveraging similar programs in other countries or explore direct-to-consumer shipping options from China.
As the industry grapples with these changes, it’s clear that the landscape of e-commerce and international trade is shifting. Companies must remain agile and innovative to navigate these new challenges in the global marketplace.
Key changes in the decreeThe new decree introduces several significant changes:• Tariff increases: Import duties on 121 apparel products and 17 made-up textiles have been raised from 20-25% to 35%. Additionally, 17 tariff headings related to textiles now face a 15% duty, up from 10%.• IMMEX program restrictions: The decree excludes certain finished products, including clothing and textile articles classified under HTS Chapters 61, 62, and 63, from temporary importation under the IMMEX program.• Immediate effect: These changes are effective immediately, affecting even goods currently in transit.
Impact on the IndustryThis sudden policy shift is expected to have significant implications:• U.S. e-commerce sellers: Many large U.S. e-commerce sellers who relied on this strategy to circumvent tariffs urgently need to reconsider their supply chains.• Mexican manufacturing: The move aims to boost domestic textile and apparel manufacturing in Mexico, potentially creating more jobs in these sectors.• Supply chain disruptions: Companies with goods already en route to Mexico may face unexpected customs duties, leading to potential short-term disruptions.
Strengthening domestic employmentSheinbaum’s decision can be seen as a strategic move to bolster the domestic labor market. By curbing the flow of Chinese goods circumventing tariffs through the “border-skipping” loophole, the decree intends to reinvigorate the Mexican textile and apparel manufacturing sectors. The government aims to generate vast employment opportunities that vastly outsize benefits derived merely from acting as logistics hubs for U.S. companies.
What’s next for retailers and importers?U.S. companies relying on this strategy will need to adapt quickly:• Reassess supply chains: Businesses may need to explore alternative sourcing options or consider shifting production to other countries.• Cost structure review: Companies must likely reevaluate their pricing strategies to account for increased import costs.• Explore alternative strategies: Some businesses may consider leveraging similar programs in other countries or explore direct-to-consumer shipping options from China.
As the industry grapples with these changes, it’s clear that the landscape of e-commerce and international trade is shifting. Companies must remain agile and innovative to navigate these new challenges in the global marketplace.