Why politicians and industry groups are calling Mexico the ‘back door’ to Chinese EV car manufacturers

Politicians and auto industry groups in the US and Canada have stepped up their criticism of Mexico, expressing concern that the country is becoming a hub for Chinese automakers trying to beat North American tariffs on their products.

Ontario Premier Doug Ford proposed this month that Mexico be excluded from the Canada-United States-Mexico-Agreement (CUSMA), a three-way trade agreement that is due for review in 2026.

Ford said Mexico has become a “back door” for Chinese auto parts makers and automakers, amid growing speculation that Mexico is allowing Chinese manufacturers to set up shop on its coast to avoid tough tariffs imposed by the US and Canada.

The US and Canada have imposed sanctions on Chinese electric vehicles, steel and aluminum this year in an effort to counter China’s overcapacity and boost domestic production. Others have criticized Mexico for not matching the costs along with its North American trade partners, and US president-elect Donald Trump has threatened to hit Mexico with additional tariffs. Mexican officials have warned that the country will retaliate.

Ford’s claim about Mexico “is making the rounds in Washington, and has been for a long time, that the Chinese are redoubled their efforts to find a way into North America, and they are looking at every opportunity.” [to do so],” said Flavio Volpe, president of the Automotive Parts Manufacturers’ Association, during a recent interview with CBC. Metro Morning.

Trump has promised a 10 percent tariff on all imported goods and has indicated that his administration will renegotiate the terms of CUSMA (also known as USMCA). Trump has accused China of violating the agreement by importing auto parts to the North American market through Mexico.

There was a 60 percent increase in the movement of export containers from China to Mexico in January 2024 from the same period last year, according to a study by the intelligence company Xeneta, where the author suggests that China may be using Mexico to evade tariffs. the US

How the so-called ‘backdoor’ works

In the US, the Trump and Biden administrations “used protectionism as a way to ensure that investment in electric vehicles in particular, and in automotive plants in particular, is not eliminated by this backdoor idea,” said Dimitry Anastakis. , professor of Canadian business history at the University of Toronto.

How does that backdoor work? Tariffs apply to exports (for example, cars built in China and then shipped to North America). By taxing imports, they become more expensive for the consumer, who may be motivated to buy a cheaper, home-made option.

Under the current terms of the trade agreement, countries must reach a certain percentage of North American content to qualify for duty-free exports — that is, 75 percent of cars and “core” auto parts. Between 40 and 45 percent of the product must be made by workers earning a minimum wage of $16 US an hour.

But some fear that those conditions are being avoided through a process called “transshipment,” where Chinese raw materials are brought and assembled into a final product in Mexico — with a made-in-Mexico label — ultimately releasing the product to the US/Canada. prices.

“The fear is that it’s going to be re-exported, that they’re going to have a system where the Chinese can set up basic facilities that look like their meeting places, make basic, low-quality content that might have some content in North America, but in reality, it’s a sneaky way to get behind in an effort to avoid the tariffs that Canada and the United States,” said Anastakis.

Juan Carlos Baker Pineda, Mexico’s former vice minister of foreign trade, was quoted by the BBC as saying that although the Chinese origin of the goods arriving in Mexico “may not be comfortable with the policies of other countries … according to international trade law, those products, for all intents and purposes, belong to Mexico.”

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Calls to kick Mexico out of North American trade deal ‘unfortunate’: former Mexican negotiator

Ontario Premier Doug Ford has suspended kicking Mexico out of the North American Free Trade Agreement. Former USMCA Mexico spokesman Juan Carlos Baker says Ford’s comments “do not reflect” the reality of North American trade.

Which Chinese companies are looking at Mexico?

Some industry groups and lawmakers have called on Canada and the US to block imports of Mexican auto parts from China, saying the practice could have negative consequences for the domestic auto industry.

“A threat [from] non-Mexican parts and materials, which may be made in Mexico, that will offset the investments that auto suppliers have made in the continent to make the goods and meet the USMCA’s definition of local content,” explained Volpe.

“This is not a growing market. Any new source is a removing source. So if you get five percent of those parts from China, for example, you will be losing the same volume of investment that works here, and it is possible that they will not work.”

A July 2024 report by the political organization Wilson Center asserted that China’s efforts to indirectly access the US market through Canada and Mexico have become a major problem. The report says Chinese exports to Mexico have “grown significantly” with hundreds of firms setting up jobs in North America.

“Nevertheless, some statistics show the fear of a ‘red tide’ quietly entering North America,” wrote the report’s authors, Earl Anthony Wayne and Diego Marroquín Bitar. They point out that Chinese direct investment in Canada and Mexico is much smaller than in the US

“The real concern is not the scale [Chinese] FDI in Mexico – rapid growth. Although still lower than other countries, China’s FDI is growing at an unprecedented rate,” Marroquín Bitar later wrote in X.

Chinese electric car maker BYD – like its peers Chery and SAIC – has publicly shared plans to build a manufacturing facility in Mexico, and is reportedly negotiating with state governments for incentives (such as tax breaks and public land) that will enable it to do so. The federal government of Mexico, on the other hand, refused to provide incentives, due to pressure from the US

Chinese auto parts companies are also setting up near Monterrey, Mexico, in hopes that Elon Musk’s Tesla will eventually build a new Gigafactory there. The project was confirmed to be on hold over the summer, when Musk said he would wait for the results of the presidential election to weigh the risks of taxes by the Trump administration he is now part of.

“One of the things the auto industry is looking for is stability,” said Anastakis, the professor, with automakers scaling back on EVs amid slowing growth and a poor political climate.

“If there’s this much uncertainty and disruption, the automakers will just back off. They don’t know what’s going to happen, and that’s going to have such a big impact.”