Volkswagen Mexico Averts a Strike, but Tariffs Keep the Puebla Crisis Alive
MEXICO · ECONOMY
Key Facts
—What happened: Volkswagen Mexico’s union accepted a 10.04% pay rise on 26 August, averting a strike in Puebla.
—The backdrop: US tariffs of 25% on Mexican-built cars are squeezing an industry heading for a 10% decline this year.
—The catch: The company had demanded a wage freeze until 2028, and the future of two plants is still at risk.
—The bigger game: Mexico is renegotiating its trade deal with Washington; tougher rules of origin are likely decided in 2027.
—The hedge: Mexico is also phasing out tariffs with the European Union under its modernized trade agreement.
Volkswagen Mexico escaped a strike last week, but only just. Tariffs, layoffs and a trade review that could run to 2027 have turned the country’s most famous car plant into a test case for Mexican industry.
A strike called off at the last hour
The independent union at the Puebla plant, known by its Spanish initials SITIAVW, had a strike deadline expiring last week. The company was demanding a pay freeze until 2028.
On Tuesday 26 August, hours from the deadline, the union accepted a 10.04% wage increase instead. The stoppage was called off, and production continued.
Nobody in Puebla treats that as a happy ending. Local media report that the future of two plants remains in play, with layoffs still on the table as volumes shrink.
Volkswagen Mexico had already weighed cutting more than 1,000 jobs in late 2025. The state of Puebla, which granted the carmaker incentives worth 197 million pesos (about US$11.6 million) last year, has warned the money will be re-evaluated.
Why the tariffs hit Puebla so hard
The Puebla factory is the largest and longest-operating car plant in Mexico. It builds around 2,300 vehicles a day, and historically two-thirds of its output has gone to the United States.
That dependence is now the problem. Cars made in Mexico face a 25% US tariff, against 15% for Japan, South Korea, Germany or Morocco, according to a study Mexico’s economy ministry presented in mid-August.
Steel, the industry’s main input, carries a 50% US tariff. Mexico’s auto sector as a whole is heading for a decline of about 10% this year.
For Volkswagen Mexico, which exports the Jetta and Taos to American dealers, the arithmetic is brutal. Every car that crosses the border now carries a cost its competitors in Alabama or Wolfsburg do not pay.
The USMCA review hangs over everything
Mexico, the United States and Canada are reviewing their trade pact, the USMCA, known in Spanish as the T-MEC. The formal review opened on 1 July, and the next bilateral round is set for early September.
Economy minister Marcelo Ebrard says the decisive issue will be rules of origin. These rules set how much of a product must be made in North America to enter the United States duty-free.
They matter enormously. Thanks to them, about 85% of Mexican exports enter the US market without paying tariffs, a privilege Mexico is determined to keep.
Ebrard has said the rules-of-origin question is too complex to settle this year. He expects the detailed review to run into 2027, which means two more years of uncertainty for plants like Puebla.
The European hedge
While the North American relationship gets harder, Mexico is making another one easier. Under its modernized Global Agreement with the European Union, Mexico is phasing out tariffs with the bloc on most goods.
The government describes the European track as a counterweight, not a replacement. It widens export options without touching the North American supply chains that employ millions.
For carmakers the logic is direct. If the US market stays expensive, a Puebla-built car needs somewhere else to go.
What to watch from here
The first test is the September round of USMCA talks. Mexico will press again for the removal of the auto and steel tariffs, and Washington will table more of its rules-of-origin demands.
The second is Puebla itself. The wage deal runs to 2028 on the company’s terms, and any further layoffs will test whether last week’s peace holds.
Frequently Asked Questions
Did Volkswagen Mexico go on strike in August 2026?
No. The SITIAVW union at the Puebla plant accepted a 10.04% wage increase on 26 August, hours before a strike deadline. The company had been demanding a pay freeze until 2028.
Why is Volkswagen Mexico in crisis?
US tariffs of 25% on Mexican-built cars and 50% on steel have hit its export economics. The company considered cutting over 1,000 jobs in 2025, and Mexican media report the future of two plants at risk.
What is at stake for Mexico in the USMCA review?
About 85% of Mexican exports enter the United States tariff-free because they meet the pact’s rules of origin. Washington wants to tighten those rules, and Mexico wants the auto and steel tariffs removed.
What are rules of origin?
They are the criteria that decide how much of a product must be made in North America to qualify for zero tariffs. Economy minister Marcelo Ebrard says the detailed review of these rules will likely run into 2027.
What is Mexico doing with the European Union?
Under its modernized Global Agreement with the EU, Mexico is phasing out tariffs on most goods. The government presents the deal as a counterweight that widens export options beyond the United States.
Connected Coverage
We covered the industry-wide picture in Mexico’s auto sector heads for a 10% decline as US tariffs bite and the wider review fight in the failed USMCA review and the decisive September round.
Sources: La Jornada; MATRIA; El Universal; El Financiero; Proceso; Forbes México; Mexico’s economy ministry (Secretaría de Economía). Exchange rates as of 31 August 2026.
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