The White House’s recent imposition of 50% tariffs on $18 billion in Chinese goods is a double signal. On the one hand, President Joe Biden is escalating the trade war against the Asian economy to demonstrate that he is not afraid to defend the interests of his electorate. On the other hand, it is a signal also directed to Mexico with this message: Chinese investment should not enter the country. Foreign trade experts agree on this, who anticipate that a possible triangulation of Chinese goods using Mexico to enter the United States is heading to be the central issue in the next review of the North American trade agreement, the USMCA, in 2026.
At a press conference on Tuesday, US Trade Representative Katherine Tai told reporters that she was concerned about Mexico’s trade relationship with China and that they should “stay alert” to future additional measures to the announced tariffs. “The pattern that is developing is one that seriously concerns us, and at the Trade Representation we are looking at all our tools to see how we can address the problem,” said She Tai. Although the tariffs announced by the US government cover a range of products from semiconductors to batteries, the focus is on electric vehicles (EV). This year, China’s BYD became the largest EV manufacturer in the world, which represents a threat to American automakers. Mexico is an export force for auto parts and vehicles to the United States and Chinese companies, including BYD, have expressed interest in opening factories in Mexico. This has raised alarm bells in the United States.
The possibility that China uses Mexico as a springboard to sell in the United States bothers the US government, but blocking foreign investment in this way would violate the trade agreement, says Kenneth Smith Ramos, who was part of the treaty’s negotiating team as an official. Mexican. “Saying ‘we are going to prevent Chinese vehicles made in Mexico from entering the United States’ would violate the USMCA with the current rules,” says the specialist.
The agreement was signed so that a company originating from a country that is not a member of the trading bloc can establish a vehicle plant even if it does not comply with the rules of origin and can export those vehicles to the United States paying a tariff of 2.5 %, explains Smith Ramos. This is considerably lower than the 50% tariff that Biden announced and the 60% tariff proposed by the former president and candidate for this November’s presidential election, Donald Trump. “Now, because of the election, Biden wants to send the signal that he is tougher with China, as if to say ‘Trump just talks, I do act,’” says the specialist.
Chinese companies are still not making cars in Mexico. In the country there is only one Chinese brand manufacturer, JAC Motors, which opened with Mexican capital years before the trade tensions began and produces a moderate amount of cars that are sold only in Mexico.
“What the US is telegraphing to both Mexico and Chinese companies is that they not establish themselves in Mexico because they will not be able to access the US market,” says Jorge Guajardo, former Mexican ambassador to China and consultant at Dentons Global Advisors. BYD, which presented its truck pick-up in Mexico on the same day that the United States announced the tariffs, has said that if they are established in Mexico it would be to serve the domestic market. “That doesn’t make any sense. The domestic market is not big enough to build a factory in Mexico itself and, furthermore, they already supply it from China,” says the former diplomat.
For the Biden Administration, the entry of Chinese goods into the country represents an economic threat, but when it comes to electric vehicles, it also represents a violation of national security. US Secretary of Commerce Gina Raimondo said on Wednesday that her ministry is close to proposing rules for the import of EVs originating in China that are connected to the Internet, as it could collect information on users and streets that could be used to violate the security of the country.
In addition, tariffs are “a respite” for American automakers, Guajardo says. “In the United States they are convinced that the Chinese electric car industry is superior, it is better and that if they start competing it would be a mortal threat to the automotive industry. So it doesn’t matter if they come from China or if they come from Mexico, they are going to stop them,” he says.
The review of the USMCA, scheduled for 2026, will focus on the uncomfortable presence of China, says Smith Ramos. “A constructive way to work on this would be that, from now on, the campaigns in Mexico are going to prepare a position to address the issue,” says the specialist, “establish a dialogue with the United States and Canada to establish the bases and combat practices unfair, with specific and more coordinated policies. But let’s do everything possible and that is the negotiation strategy that Mexico has to develop, so that the treaty is not reopened.”
For Guajardo, this could represent an opportunity to attract better quality investment to Mexico. Although Chinese automakers could invest large amounts in the Latin American country, their business practices usually favor the transfer of Chinese suppliers and not the development of the local industry. “It is a model that does not seek to spill much into the country, but rather seeks to replace what exists in the country,” he concludes.
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