Title: Trump‘s Growing Concerns over China‘s Role in Mexico‘s Trade with the U.S.
In 2018, U.S. President Donald Trump launched a trade war with China, inadvertently benefiting Mexico as companies sought to avoid U.S. tariffs by diversifying their production elsewhere. Mexico’s accessible labor, decent infrastructure, and free trade agreement with the U.S. made it an attractive alternative. However, as Trump’s second term nears, this dynamic is shifting.
Trump believes that Chinese companies are exploiting Mexico as a backdoor into the U.S., free of tariffs. His threats to impose a 25% tariff on Mexican imports on "Day One" of his second term, unless Mexico halts illegal migrant entry and drug trafficking at the border, reflect his convictions. These concerns could potentially derail the United States-Mexico-Canada Agreement (USMCA).
Bipartisan concerns about Chinese activity in Mexico are not new. In 2019, U.S. officials feared that Chinese exporters were using Mexico as a conduit into the U.S. market, particularly for steel and aluminum. Mexico addressed this by imposing tariffs on Chinese imports of these metals and implementing a "melt and pour" rule, requiring significant transformation of steel in Mexico before export to the U.S. The problem of products being labeled as "made in Mexico" when actually from China is likely rare.
Now, the focus is on Chinese companies assemble or manufacture products in Mexico for sale in the U.S. This is becoming common. In 2023, Mexico surpassed China as the top goods exporter to the U.S.; meanwhile, Chinese exports to Mexico have surged. In 2002, Mexican exports to the U.S. contained less than 5% Chinese components by value. By 2020, that figure had risen to 21%.
Electric vehicle (EV) production is a key issue. Most EVs sold worldwide are made in China, often at lower prices than U.S. rivals, with equivalent or superior quality. Last September, President Joe Biden raised tariffs on Chinese EV imports to 100%, which would drive up sales absent those duties. However, these tariffs do not apply to vehicles made in Mexico.
Trump claims that Chinese automakers are building "huge" factories south of the border. This is false. Only one Chinese joint venture produces EVs for the Mexican and regional market. Chinese EV giant BYD plans to build a factory in Mexico with capacity for 150,000 vehicles annually, but construction has not started. This month, smaller manufacturer Solarever announced plans for a northern Mexico plant.
Chinese companies are expanding in areas further down the supply chain. In 2018, eight Chinese auto parts manufacturers operated in Mexico; by late 2023, there were at least 20. These companies produce components, battery casings, and high-tech elements like driver-assistance software. Many Mexican-made vehicles with Chinese components meet the USMCA’s 75% production requirement to qualify as duty-free.
However, political tolerance for China is waning. "Made in China" is now viewed with suspicion. Enrique Dussel Peters, director of the China-Mexico Study Center at the National Autonomous University of Mexico (UNAM), says the USMCA’s free trade is now subsidiary to China concerns, which may impact the agreement’s 2026 review. In September, Marco Rubio, tapped by Trump for Secretary of State, warned about China’s "wild exploitation" of Mexico as an intermediary and manipulation of the USMCA. Some Canadian politicians propose expelling Mexico from the USMCA and forging a bilateral free trade deal.
Mexican officials complain that focusing on Chinese investment in Mexico is hypocritical, as Chinese investment in the U.S. dwarfs that in Mexico. Yet, Chinese foreign direct investment (FDI) in Mexico has surged while declining in the U.S. Moreover, official Mexican FDI figures seem to underestimate Chinese investment by a factor of six, according to the Rhodium Group, which estimates cumulative Chinese investment in Mexico at $13 billion since 2013.
Mexican President Claudia Sheinbaum is taking note. Her administration is quickly appeasing its northern neighbor by establishing an investment review agency modeled on U.S. and Canadian counterparts, and plans to substitute Chinese imports with Mexican-made components. Economy Secretary Marcelo Ebrard wants Mexico to start manufacturing microchips and lithium batteries.
However, the debate is decoupled from trade reality. Foreign companies in Mexico, mostly American, account for 70% of U.S.-bound exports. U.S. automakers like General Motors and Ford have integrated Chinese companies into their supply chains, even encouraging them to set up shop in Mexico.
Replacing imports takes time and incentives. Mexico lacks resources to match U.S. subsidies for domestic chip and battery production. Some inputs are only available in China. "We haven’t developed regional supply chains for EV battery inputs," says Odracir Barquera of Mexico’s Automotive Industry Association.
Meanwhile, Mexico worries that Chinese companies could displace Mexican rivals in North American supply chains. If that happens, Mexico could again lose market share in U.S. exports, as it did to China in the early 2000s, warns Margaret Myers of the Inter-American Dialogue.
Both U.S. and Mexican officials agree: "The message to the U.S. is, ‘How can I help you make what you’re importing from Asia?’" says Luis Rosendo Gutiérrez, a Mexican government official. "Because that will also help us."
