The US and Europe are trying to stop Chinese electric cars by frying them with tariffs. Mexico lives between a rock and a hard place

The geopolitical map of the electric vehicle market was clearly defined just over a week ago. On the one hand: Europe and the United States, as well as tariffs designed to stop expansion from Asia. On the other hand, China is against everyone. But in this game there are free pieces on the board that do not know whether to attack or retreat in time. Mexico has become the closest thing to China’s “American factory”, but now it is not so clear cut.

Made in China, in Mexico. Last year it was all good news. Mexico became the world’s second-largest recipient market for Chinese cars, purchasing 260,000 vehicles in a year. Not only this. The country became a strategic location for Asians as a transit point for their vehicles, opening doors to the Latin American market and, very importantly, the United States (Mexico was already the largest exporter of products to the United States).

The most telling fact about China’s importance and its entry into the country with the automobile sector is that the industry contributed 4.8% to the country’s GDP in November last year, and its exports were the main source of foreign exchange. In addition, it created one million direct jobs and 3.5 million indirect jobs. With China, everything had to be accelerated.

China-USA. Since 2024, China has increased its dominance in global supply chains. This is a problem for the United States, the planet’s largest consumer, which is seeking to tighten commercial ties with China to distance itself from trade dependence.

In fact, under Biden, the tariffs Trump imposed on China (from solar panels to steel, aluminum and even washing machines) have been maintained, and he has banned local companies from investing in technology sectors that China considers strategic, in addition to limiting semiconductor production. exports and chips to the Asian economy. In May, he announced 100% tariffs on Chinese electric vehicles.

For its part, China has resorted to subterfuge to keep its expansion in the United States unchecked. Essentially, it redirected its goods to Mexico, thereby avoiding some of the tariffs. A beneficial situation for the local Mexican economy, if it did not have the support of Washington and the possibility of changing relations with the United States.

Chinese “trick”. Chinese automakers could circumvent U.S. tariffs by setting up production in Mexico, but, importantly, as long as they comply with rules about how much of their vehicles must be produced locally.

To avoid US tariffs, products must have a certain percentage of regional assembly and components, which varies by product and sector. At least 75% of the vehicle’s major parts, such as the engine or transmission, must be manufactured in the North American region. That’s why they want to build a plant in Mexico.

Mexico hesitates. In April, under US pressure, Reuters reported that Mexico’s federal government appeared to be taking sides, keeping Chinese automakers at arm’s length, refusing to offer incentives such as cheap public land or tax cuts for manufacturing investment. cars. electric vehicles. If so, this initiative would directly affect Chinese manufacturer BYD and its proposal to build China’s first electric vehicle factory on Mexican soil.

The measure, of course, was signed by the Office of the United States Trade Representative (USTR) to keep Chinese automakers out of the free trade zone created under the North American Free Trade Agreement (T-MEC).

China-Europe. There were also doubts on the part of the European continent, because the EU’s second trading partner is China. A week ago, however, it appeared to take sides by imposing, like the US, tariffs on Chinese electric vehicles ranging from 17% to 38% from July on three major Asian manufacturers: BYD, Geely and SAIC.

Mexico is at a crossroads. In this case, and since the trade war in the field of electric vehicles is quite certain, everything seems to revolve around the decision that Mexico will make, a responsibility that, as we have seen earlier, goes far beyond creating obstacles in the way of China, it also places on it responsibility. What is at stake is its own economy, the relationship it may have with its neighbor the United States. Meanwhile, we know that the situation with BYD changed a few days ago.

In fact, the Chinese manufacturer that sold the most electric vehicles in 2023 is seriously exploring the possibility of opening a plant in Mexico where it could produce directly. Could this be a viable alternative to bypassing 100% US tariffs? This seems difficult, but it is also difficult to imagine that China is not eager to enter an industry like the US with 333 million inhabitants.

Chinese warning. As Mexico picks the daisy and decides its place on the geopolitical chessboard, China is warning anyone who opposes it. Without going too far, the future of European manufacturers in the Chinese market may be in doubt. Even Spain, which is in favor of the tariffs adopted, is already beginning to feel the Chinese breath with its first victim: Spanish pork.

Message for seafarers.

Image | Huawei, Christian Frausto Bernal

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