The below article was written by Michael Dunne of Dunne Insights.
Mexico finds itself, quite suddenly, awash in Chinese cars. Hundreds of thousands of them.
The United States and Canada look at the situation and wonder: What exactly is going on with our neighbor to the south, our trusted partner in the USMCA?
Now imagine for a moment that you have been appointed to be the independent judge and jury.
Do you find Mexico:
A. Guilty — Mexico is secretly building ties with China.
B. Innocent — Mexico was blindsided.
or
C. It’s Messy — Mexico was an unwitting accomplice.
Before delivering a verdict you say you need more facts.
Here’s how the events have unfolded:
Back in 2020, Mexico decided to open the door wider to imports from China. A decree dropped import tariffs on cars from 20% to 0%. The idea was to give some Mexican car buyers access to low-cost electric vehicles (EVs).
Pretty soon a small stream of affordable cars from companies like Chery, Great Wall and MG arrived on Mexican shores.
No harm, no foul.
But then, the numbers began to jump. Today, a tsunami of Chinese cars and trucks is pouring into Mexico — and flying out of showrooms.
The P.R.C. will ship close to 500,000 vehicles to Mexico this year. China has blown past the United States to become Mexico’s number one supplier of cars.
One of every three new cars sold in Mexico this year will be built in China. That’s up from just 4% in 2020.
Mexico’s leaders appear to be frozen in stunned disbelief.
“I just don’t think Mexico was prepared for China’s scale and speed,” Travis Bembenek, CEO of Mexico News Daily, told me last week.
Mr. Bembenek, who has been doing business in Mexico for more than 30 years, knows his adopted country well. He is probably right.
And yet, the Mexican government seems strangely slow to counter the flood of Chinese imports. In fact, the Chinese market momentum seems to be getting stronger by the month.
BYD: Big, bold plans
Take Berkshire Hathaway-invested BYD, for example. China’s No. 1 automaker just entered Mexico in 2023.
The company is on track to sell 50,000 cars in Mexico this year. And BYD de Mexico CEO Jorge Vallejo says the company plans to double that to 100,000 in 2025.
That’s not all. Vallejo says that BYD will soon announce the location of a new BYD plant with the capacity to build 150,000 cars per year.
One veteran Mexican car dealer who just started selling BYDs told me he was ecstatic. “I’ve never sold so many cars in a quarter!”
BYD’s numbers look even more stunning when compared with industry giants like Toyota. It took the world’s largest automaker 22 years before it achieved 100,000 sales in Mexico in a single year.
BYD plans to get there in just 36 months. As my teenage daughter, Aurelia, likes to say: Wait, what?
Mexico’s own export machine
At the same time that Mexico is spending billions on cars imported from China, the country is also exporting a record number of vehicles to the United States.
In 2023, Mexico shipped a record 2.2 million cars to the U.S. It is a lucrative business for Mexico that also employs tens of thousands.
Mexico is also home to a strong and vibrant parts industry.
It is natural to wonder: Why would Mexico import so many cars from China when the country is working hard to build its own export-oriented industry?
That does not make sense.
Trade sweats
China’s surge in investment south of the border has given North American leaders those middle-of-the-night sweats. Mexico is the canary in the coal mine.
Earlier this year, the Biden administration imposed 100% tariffs on Chinese imports. And President-elect Trump has said that he will absolutely block any efforts to bring Chinese cars into the U.S. via Mexico.
In October, the Department of Commerce added new regulations to ban cars with Chinese hardware or software from being sold in America.
Trump’s declaration
American politicians and industrial leaders are beginning to complain out loud that Mexico may be a less than totally reliable partner.
On November 7th, just two days after the election, President-elect Trump made clear his displeasure:
“I’m going to inform her [President Sheinbaum] on day one that if they do not stop this onslaught of criminals and drugs coming into our country, I am going to immediately impose a 25% tariff on everything they send to the United States of America.”
Trump is not alone in his fury. Last week Doug Ford, the Premier of Ontario, Canada, recommended potentially removing Mexico from the USMCA.
Ford said Mexico should “at the very least” match U.S. and Canadian tariffs on Chinese imports, or “they shouldn’t have a seat at the table or enjoy access to the largest economy in the world.”
When four is a crowd
Tensions are building. The U.S. and Canada are not happy. China is quietly delighted. Mexico is under pressure to act.
Look for Mexico to increase tariffs on Chinese cars. Soon. Car exports to America are simply too crucial to the Mexican economy.
The 0% decree elapsed in September, so now Chinese cars face an import duty of 20%. That is hardly enough to stop the flow.
“Mexico will match the [100%] tariffs of the U.S. and Canada,” said Jorge Guajardo, former Mexican ambassador to China and now a partner at the DGA Group in Washington D.C., “precisely because Mexico wants to protect its own industry, its own supplier base. There is a strong auto parts lobby in Mexico pushing for higher tariffs right now.”
That happened, now what?
Mexico opened the door. Chinese automakers flew in. The U.S. and Canada got nervous: Is Mexico complicit or naive, they wondered?
The USMCA is definitely entering new territory. Much remains up in the air.
• What happens, for example, if Leapmotor International, the 51/49 JV between Stellantis and Leapmotor, starts building cars in Mexico?
• How will states like California react when some of the nearly one million Chinese cars now running on Mexican roads find their way north across the border? (I already see an occasional China-built car with Mexican plates rolling on San Diego highways)
Things can get complicated in a hurry.
Amidst all the uncertainty, one thing is clear: China successfully poked the USMCA. It won’t be the last time.
That’s the verdict.
Michael Dunne is an entrepreneur, author and keynote speaker. In 2018, Dunne founded Dunne Insights to deliver world-class advisory services on global electric and autonomous vehicle markets. Subscribe to his newsletter at newsletter.dunneinsights.com.
Outstanding article thank you
Try bringing a US made car with you into Mexico… and then you’ll have a solution
Try it and have them treated as “chocolate”.
American carmakers were fat and lazy in the 70’s and 80’s when the Japanese invaded their turf. Telsa woke them up recently. The Chinese are about to deliver a knockout punch. Tariffs will save them and the loser will be the American consumer.
And the Mexican consumer, who will pay more for EVs of excellent quality.
I can see limiting import of EVs on the grounds that too many will overstrain the electrical grid. But that would apply to all EVs, not just Chinese EVs.
Very informative article. And I think Mexico should move quickly to address this issue.
. . . ” . . . first they ( the Chinese ) came for the local honey production . . . ” with their ‘cheap’ imported sweet make believe honey . . . NOW it’s the big ticket items . . .
“ Why would Mexico import so many cars from China when the country is working hard to build its own export-oriented industry?”
1) Because the Chinese cars have the style, features, and price points Mexican consumers prefer
2) Mexican companies build different cars and parts for Customers North of the border because that’s what those customers want or it’s what they are ‘allowed’ to have because Chinese cars are not really an option
Wait a second… what’s going on with this article? Did I read this correctly?
Mexico has imported less-expensive vehicles from China for the domestic market to allow lower wage-earners access to affordable (electric) vehicles. While implied, none of these vehicles have been exported to the US. The article quotes politicians (propaganda?) as a source for contention between the 3 countries, but provides little in the way of facts, other than some projections of the future.
So here are the facts according to open sources easily found through a typical internet search:
There were a reported 1.36 million cars sold in Mexico in 2023. The breakdown by brand: 17% sold by Nissan, while General Motors held a 13.5% market share, and the Volkswagen Group held 11%. Toyota and Stellantis had market shares of 7.6% and 7.1%, respectively.
This article makes it sound like Mexico is breaking some sort of unwritten rule as quoted by populist politicians north of the border. And, while it is certainly plausible China would like a back-door into the US automotive market, there currently are NOT any laws (or market avenues) on the books to allow for Chinese car imports through Mexico into the US or Canada. Besides, this article fails to point out that the US controls its southern (import) border for autos. The US can simply not allow Chinese cars to cross.
IMHO, articles like these add to the nationalist and populist propaganda machine, which results in a lot of voters voting against their own interests. We as a society have lost the ability to read past the propaganda.
Best reply yet. You’re right. Mexico is importing good quality, less expensive cars for their population. What in the world does this have to do with The US or Canada? Mexico is a sovereign nation fully capable of conducting their own business however they see fit. Importing Chinese cars into Mexico has absolutely nothing to do with either country to their north or to their USMCA/CUSMA. The North American auto industry is deeply entrenched in a global supply chain and enterprise in which each of the 3 signatories benefits and that industry has nothing whatsoever to do with autos that Mexico imports for it’s own domestic use.
The Canadians are embarrassing themselves. Running around like Chickens with their heads cut off. Trump has them exactly where he wants them so the Canadians are looking for a scapegoat. Trump must be laughing. Wait till Trump asks Canada to open up the Canadian diary market. Politicians in glass houses should not throw stones.
Thank you, Jeff. Nice to read some sanity in the insanity we are bombarded with. Watch the insanity heat up as the reality of the dedollarization starts to sink in in Washington. Thank you BRICS for giving the world options and a place to survive without fear of sanctions and tariffs. Remember, México is a sovereign country and no, the USA does not have a right to make policy for them on their own domestic products. And they certainly don’t want to push México towards the global south with these kinds of obscured policies , do they? Wonder when they will realize bullying isn’t gonna work like it did in the past???
If it is correct that the U.S. can ban any Chinese vehicle at the border, what is the problem? Every car that crosses into the U.S. from Mexico is subject to U.S. laws and regulations. I know I cross the border into the U.S. two/three times a week.
This article is welcome. Imagine my surprise when I saw a new “MG” sedan alongside me on a Tijuana street. Back in the Sixties, I owned two MG sports cars. I thought the brand was history. I never dreamed the Chinese were the 21st-century MG.
So, Mr. Trump act like a real President. Issue standards Chinese cars don’t meet, and they are banned from being imported into the U.S. and prohibited from entering the U.S. at any port of entry by privately owned cars from China.
[email protected]
I don’t recall any time or licensure of automobile barred from crossing from the U.M.S. to the U.S.A. in the 52 years that I have lived along the U.M.S. border with Alta California and Arizona. Think smog, uninsured drivers, etc.
@Jeff and @Howard French. How refreshing to read your reply!
It’s a question I’ve been asking myself for a while: If we can buy a Chinese-made plastic bucket at Walmart for $5, but if forced to buy an American-made on for $10, to protect Union Jobs, aren’t we hurting ourselves, the American consumer? Is this really free enterprise? How can we rich Americans, blame Mexico, for bringing in affordable autos? When you see Mexican families riding three-up on their Chinese motorcycles, in the rain, you wish that family could own a car. Maybe my views are simplistic, but there are always two sides to a story.
This reads like a biased essay from a not-too-bright high school student; I’m seriously reconsidering my subscription. Are there editors or any sort of standards at MND?
I don’t think the U.S. necessarily has a problem with Chinese-made vehicles being exported and sold to the domestic market in Mexico, as long as they play by the same rules that the U.S. and other foreign carmakers play by. But the U.S. does not want those vehicles to be heavily subsidized by the Chinese government simply to gain foothold and influence in Latin America, which is an unfair trade practice. The U.S. is also well aware that the Chinese will try to sneak cheap subsidized cars into the U.S. to undercut the U.S.’ domestic production.
Whatever the U.S.A. may claim to be its concerns, my primary concerns are: (a) unfair competition through subsidized/slave (but I am alright with Chinese jihadis being slaves) labor; and, (b) México stupidly ceding the means of production of a core industry to foreigners anywhere and to the best of my knowledge that is “nearshoring”.
Even if you could get a Chinese car into the US you couldn’t get parts or mechanics that could work on them and probably couldn’t get them insured.
Wait a minute, the USMCA already makes it impossible to get duty-free treatment into the US or Canada for cars built anywhere except in the three countries. Here’s a quick AI summary. You can see tht cars from China would not pass the requirements. It’s possible that a car buiilt BYD plant in Mexcio would pass if BYD dod a lot of loca sourcing.
Don’t conflate an individual driving a Chinese car from Mexico into the us with an importer truing to bring in a lot of cars. The importers are subject to the USMCA
The United States-Mexico-Canada Agreement (USMCA) has several requirements for auto imports to the US from Mexico, including:
Regional Value Content (RVC)
The RVC for passenger vehicles and light trucks must be at least 75%. This is an increase from the 62.5% requirement under the North American Free Trade Agreement (NAFTA).
Labor Value Content (LVC)
At least 40% of the value of a vehicle must come from manufacturing facilities where workers earn at least $16 per hour. For light and heavy trucks, the LVC requirement is 45%.
Steel and Aluminum
At least 70% of a vehicle’s steel and aluminum must come from North America.
The USMCA’s automotive rules of origin (ROOs) are intended to increase automotive investment and employment by encouraging the production of vehicles and parts in the US.
In addition to the USMCA, there are import duties on cars imported to the US, which are calculated at 2.5% of the cargo value. Pickup trucks are taxed at a higher rate of 25%.
Customs and Border Protection
2022 USMCA Autos Report to Congress – U.S. Trade Representative
Jul 1, 2022 — The USMCA raises regional value content (RVC) requirements to 75 percent for passenger vehicles and light trucks, compa…
U.S. Trade Representative
USMCA: Motor Vehicle Provisions and Issues – CRS Reports
Oct 14, 2021 — USMCA Key Changes … increase in the North American content requirement from NAFTA’s 60%-62.5% to USMCA’s 70%-75%. ..
CRS Reports
Show all
Generative AI is experimental.
My understanding is that these new requirements can be onerous such that a good portion of Mexican built cars are just paying the 2.5% tariff.
Great information, but were the spelling errors from AI?
local sourving, not loca sourcing.
I would like to thank M.N.D. and commentors here for what I find to be a very informative discussion. I find Mexico’s opening of the floodgates to Chinese cars just as questionable as Trump ignoring that reality in favor of demonizing all immigrants.
Perhaps Mexico should apply to Washington for independence. Or is Mexico already a sovereign independent country? From many of the business or political-oriented articles on MND, it’s hard to know.
Mexico should follow China’s example to the extent that it’s possible and that it works for Mexico. Why are Chinese cars becoming so popular abroad? Low prices for high quality. Western manufacturing companies, before the turn of the millennium, wanted to lower costs to increase profits for shareholders. They saw that China, in particular had good infrastructure and geography, and millions of workers, who could do what their union workers at home could do for a fraction of the labor cost, even with additional transportation. China saw a chance to not only bring money into the country, but also a chance to hasten its development. China has long insisted on ‘technology transfer’ as part of the bargain for supplying low cost labor in China. And it has worked well for them. Chinese managers and workers examined how then-state-of-the-art manufacturing processes were carried out by foreign firms and improved on them. At the same time, millions of Chinese young people had the opportunity to go to university, both in China and in western countries, and studied foundational science and technology in high numbers. Now China leads the world in patent applications every year. Mexico could and should benefit from locating foreign manufacturers within its borders, whether from ‘approved’ countries or not.
If the United States and Canada are willing to submit to scrutiny for all decisions made in trade relations, then perhaps Mexico should too. But I doubt they would. Mexico does a lot of business with these two advanced economies, particularly with the United States. However, the world is getting smaller, and fewer countries outside North America are willing to put up with the once unipolar power than before. The US should work with Mexico, in order to maintain a healthy and productive economic relationship.
Can we talk about the BYD plant in Lancaster, California as part of this entire concern? Or is that just ok because USA did it?