Three knowledgeable Mexican officials told Reuters that under pressure from the United States, the Mexican federal government is refusing to provide low-cost public land or tax incentives for electric vehicle production investment and is keeping its distance from Chinese automakers.
The officials stated that the last meeting between Mexican senior officials and Chinese automakers took place in January, with executives from BYD in attendance.
According to the unnamed sources, during the meeting, Mexican officials made it clear that they would not offer incentives like they had in the past to automakers, and they would suspend any future meetings with Chinese automakers.
A White House spokesperson stated that President Biden will not allow cars produced by Chinese automakers to flood the market, as it poses a threat to national security.
Mexico is the second-largest economy in Latin America. Currently, about 20 Chinese automakers are selling cars in Mexico, but none have established factories there. Chinese cars make up about one-third of the total sales volume of Mexican brands.
It is believed that this move is due to pressure from the U.S. government, especially from the U.S. Trade Representative’s office, which is requesting that Chinese automakers not enter the free trade zone established under the North American Free Trade Agreement.
Officials from the U.S. Trade Representative’s office told Reuters that the goal of the United States-Mexico-Canada Agreement (USMCA), also known as the new NAFTA, is not to provide a “back door” for China and other countries to enter the market without paying tariffs.
The office is closely monitoring this issue because it involves automobiles, steel, and aluminum.
In a statement released by the White House on April 17th, President Biden urged the U.S. Trade Representative to double the import tariff rate on Chinese steel and aluminum.
During a speech at the United Steelworkers Headquarters in Pittsburgh, Biden stated, “We know that Chinese steel and aluminum are being imported to the U.S. from Mexico, avoiding tariffs. Just yesterday, I dispatched a delegation to Mexico to address this issue. I assure you, Mexico and the U.S. will work together to resolve this issue.”
Furthermore, Biden directed senior government teams to collaborate with Mexico to prevent Chinese-produced steel and aluminum from entering the U.S. through Mexico to evade tariffs. The U.S. Trade Representative’s office is also investigating unfair trade practices by China in the shipbuilding, maritime, and logistics sectors.
During a campaign rally in Ohio in mid-March, former President Trump condemned China’s attempt to export cars to the U.S. through Mexico. He promised that if elected president, he would impose new tariffs to prevent such imports.
“You’re building these massive car factories in Mexico right now. You think you’re going to get away with it – not hiring Americans and selling us the cars. No.”
“We are going to put a 100% tariff on every car in the (Chinese car manufacturing plants in Mexico) parking lot,” he said.
U.S. intervention reflects concerns from the U.S. automotive industry, unions, and political circles about Chinese automakers, such as BYD, SAIC Motor, Geely, Chery, and JAC Motors, aiming to use Mexico as a backdoor to sell cheap electric vehicles in the U.S. market without paying the high 27.5% tariff.
U.S. Trade Representative Katherine Tai stated on Wednesday that the U.S. must take decisive action to protect electric vehicles from competition subsidized by the Chinese government.
Last month, Republican Senator Marco Rubio introduced legislation seeking higher tariffs on Chinese automotive imports. Two days later, three Democratic senators from auto manufacturing states urged the Biden administration to increase import tariffs on Chinese electric cars.
Chinese automakers can bypass U.S. tariffs by establishing plants in Mexico as long as they meet the local car production ratio requirements.
Peter Sand, chief analyst at research firm Xeneta, said, “A significant portion of goods arriving in Mexico by sea might be trucked to the U.S., leading to suspicions that the trade growth we are seeing is due to importers trying to evade U.S. tariffs.”
To avoid U.S. tariffs, products must have a certain percentage of regional assembly and components, with specific ratios varying by product and industry. At least 75% of core automotive components (such as engines or transmissions) must come from the North American region.
Despite facing resistance, Chinese automakers like BYD are still seeking to establish roots in Mexico. By the end of February, BYD insisted that any factories in Mexico would only serve the local market and not ship to the U.S. However, many industry officials expressed doubt about this claim.
An insider told Reuters that BYD is now seeking incentives from state governments, although these incentives are not as generous as federal incentives.
Industrial states such as Durango, Jalisco, Mexico State, and Nuevo Leon are all looking for Chinese automakers to open assembly plants and are providing various incentives. In December last year, Nuevo Leon approved $153 million in incentives for the Tesla factory.
Francisco Bautista, a partner at EY Mexico, stated that federal incentives have been generous in the past, including providing free land, water, and energy facilities, as well as assisting in hiring workers.
Bautista added that during the current administration, such incentives have decreased, but some incentives are still available for major investors like Audi.
As part of high-level talks between the U.S. and Mexico last September, officials from the Mexican Ministry of Economy and Ministry of Foreign Affairs met with officials from the U.S. Department of Commerce, State Department, and U.S. Trade Representative’s office in Washington.
Sources said that during this meeting, the topic of Chinese automakers establishing electric vehicle production bases in Mexico was raised, although it was not on the meeting agenda.
In January of this year, officials from both countries met again in Toronto, with U.S. officials once again raising concerns about curbing Chinese automakers.
Mexican officials stated that although Chinese investment can benefit the local economy, as the USMCA is set to be revised in 2026, the Mexican government is concerned about upsetting Washington.
Under the “Sunset Clause,” the two countries will decide in July 2026 whether to extend the USMCA for an additional 16 years. An insider said that Mexican officials are concerned that U.S. officials may seek a thorough modification of the trade agreement, which could harm Mexico’s interests.