Chinese electric vehicle makers have been facing tariffs in the U.S., leading them to explore other markets such as Mexico. With China being the leading car supplier to Mexico last year, valued at $4.6 billion, Chinese EVs have gained popularity in the Mexican market due to their affordable price tags. Tesla’s rival, BYD, for instance, sells its Dolphin Mini in Mexico at a price significantly lower than that of a Tesla, making it an attractive option for customers. The aggressive push by Chinese automakers has been successful in the Mexican market, with promises of good products at reasonable prices.
However, while Chinese EV makers are trying to further establish themselves in North America by exploring factory sites in Mexico, U.S. officials have raised concerns. They fear that Mexico could be used as a “backdoor” to enter the U.S. market, circumventing trade restrictions. Under the United States-Mexico-Canada Agreement (USMCA), goods manufactured in Mexico can be exported to the U.S. duty-free if local sourcing of building materials is proven. This has raised worries about Chinese automakers exploiting this provision to gain access to the American market.
The potential scenario of Chinese EV makers setting up manufacturing plants in Mexico and exporting their vehicles duty-free to the U.S. poses a significant threat to American automakers. The lower costs of Chinese electric vehicles could make them more competitive in the U.S. market, posing a challenge to local manufacturers. This concern has prompted U.S. lawmakers and auto companies to contemplate the risks posed by Chinese investment in Mexico and the potential impact on the American automotive industry.
Protectionist Measures by the U.S.
President Joe Biden’s announcement of a 100% tariff on Chinese EVs in May reflects the U.S.’s efforts to protect its fledgling electric vehicle industry. The U.S. market for EVs is still in its early stages of development, and measures are being taken to safeguard it from external competition. The imposition of tariffs aims to shield American automakers from the threat of cheaper Chinese EVs flooding the market and disrupting the growth of the domestic electric vehicle industry.
Strategic Positioning of Mexico
Mexico finds itself in a delicate position, balancing its relationship with both the U.S. and Chinese investors. With pressure from the U.S. to prevent Chinese EVs from entering the American market through Mexico, the country must navigate its economic ties carefully. Maintaining a crucial relationship with the U.S. while also being open to foreign investment from China presents a challenging dilemma for Mexico, as it seeks to support its economy while respecting international trade agreements.
The potential influx of Chinese EVs into the U.S. market through Mexico has sparked concerns among U.S. officials and auto companies. The strategic positioning of Chinese automakers in Mexico and the possibility of exploiting trade agreements raise alarm bells for safeguarding the American automotive industry. As protectionist measures are implemented to shield domestic manufacturers, the dynamics of international trade and competition in the EV sector continue to evolve, posing challenges and opportunities for all stakeholders involved.