Chinese Electric Vehicles Threaten US and Mexican Automakers
The United States-Mexico-Canada trade agreement (USMCA), implemented four years ago, is facing a common concern in Mexico and the U.S. – the prospect of cheap Chinese electric vehicles (EVs) dominating the market and undermining regional carmakers like GM, Ford, and Tesla. The data from S&P Global Market Intelligence shows that EV and plug-in hybrid imports from China to Mexico have increased by 443.9% in the first quarter compared to the previous year. Currently, approximately 1 in 10 cars sold in Mexico comes from a Chinese automaker, with seven new brands entering the market last year alone.
Former Vice Minister for Foreign Trade in Mexico, Juan Carlos Baker, stated that the influx of Chinese cars in Mexico has been evident, with aggressive marketing and sales campaigns making them more prominent. However, the threat of cheap Chinese EVs flooding the market was not a concern during the negotiation of the USMCA. Concerns have now arisen due to increased imports and investment. Mexico’s proximity to the U.S. has raised alarm in Washington, as lawmakers fear that auto companies will use Mexico as a backdoor to evade U.S. tariffs on Chinese car imports.
Chinese automaker BYD has expressed its intention to establish a factory in Mexico, although it has no plans to enter the U.S. market. China’s focus on foreign markets is driven by the maturing domestic market and slowing sales within China. Mexican automotive analyst Felipe Munoz describes Mexico as “the perfect match” for Chinese firms, with free trade agreements, easy access to resources, and a cost-effective labor force. Following a similar strategy to Brazil, where Chinese automakers have already set up manufacturing operations, China aims to expand its presence in Mexico.
Chinese EV makers currently hold an 86% market share in Latin America as they apply aggressive price competition strategies. The less complex regulations and safety standards in developing economies make Chinese EVs an attractive and affordable choice. However, in developed markets like Europe, lawmakers are revisiting trade rules to prevent an influx of cheap vehicle imports. Europe recently imposed tariffs on Chinese EV imports, and President Joe Biden increased tariff rates on Chinese EVs and lithium-ion batteries. As a result, Chinese carmakers are shifting their investment decisions away from developed markets like the U.S.
The changing dynamics have prompted a reconsideration of the USMCA two years before its scheduled review. However, new leadership in Mexico and a potential return of the Trump administration could complicate efforts to address the issue of Chinese EVs. Despite the challenges, it is unlikely that Chinese firms will find a way to comply with the stringent automotive rules of origin in the existing trade agreement. The USMCA requires automakers to meet three rules of origin, making it difficult for Chinese cars to be passed off as Mexican vehicles.
In conclusion, the increasing presence of Chinese EVs in Mexico and the potential impact on the U.S. market have raised concerns for regional carmakers. While Chinese automakers continue to expand abroad, the implementation of stricter regulations and tariffs in developed markets may limit their growth. The USMCA is being revisited to address the issue, but challenges remain in finding a solution that satisfies all parties involved.