Chinese cars are pouring into Mexico — and the U.S. is worried

A shipload of cars line up for export to Mexico at the dock in Lianyungang, China. (Getty Images)

Four years after the United States-Mexico-Canada trade agreement (USMCA) was adopted, Mexico and the U.S. face a common concern: the prospect of cheap Chinese electric vehicles dominating a fast-growing market and undermining regional carmakers like GM, Ford, and Tesla in the process.

Chinese imports have already begun south of the U.S. border. EV and plug-in hybrid imports jumped 443.9%, by value, in the first quarter compared to the same period the previous year, according to data from S&P Global Market Intelligence.

Overall, 1 in 10 cars sold in Mexico today comes from a Chinese automaker, according to Reuters, with seven new brands entering the market last year alone.

“Almost overnight, we started seeing Chinese cars driving in Mexico,” said Juan Carlos Baker, Mexico's former vice minister for foreign trade. “In terms of how often you see them and how aggressive their marketing and sales campaigns have been on the part of Chinese cars, that is really pretty evident.”

However, calls to curb Chinese EV makers in the U.S. and Mexico have intensified recently in response to increased imports and investment. According to Baker, who played a critical role in crafting the USMCA, the threat of cheap Chinese EVs flooding the market never emerged as a concern in the two years the trade pact was being negotiated.

"I was present in every single meeting, and I don't remember once Ambassador Lighthizer or anyone at [the U.S. Trade Representative office] saying, 'We need to make these rules of origin or other elements very strict because the Chinese are coming,'" he said.

Although Baker noted that no Chinese carmaker has started manufacturing vehicles in Mexico yet, the country's proximity to the U.S. has raised particular alarm in Washington. Lawmakers fear auto companies will use the country as a backdoor to skirt U.S. tariffs on Chinese car imports, which President Joe Biden raised to 100% last month.

BYD has publicly expressed its intention to set up a factory in Mexico; however, its top executive has insisted the company has no plans to enter the U.S. market.

Mexico is 'the perfect match'

Foreign markets have taken on increased importance for Chinese firms as the domestic market matures and sales in China slow.

The early success of Chinese auto brands in Latin America offers a glimpse into their expansion strategy to build a presence in countries with a large number of free trade agreements, easy access to resources, and a labor force that offers high-quality production at a lower cost.