Imported Chinese brands are already big in Mexico, but producing cars there would allow duty-free access to the United States and Canada
4 hours ago
We keep hearing about how Chinese car companies are ready to take over the world, but while the Chinese car industry is already starting to make its presence felt in Europe, will it really be able to survive in America, where tariffs are already in place to keep its cars uncompetitive?
New investigation into Motor trend explains why U.S. automakers can’t afford to be complacent because China has a secret weapon located just across the U.S. border: Mexico. While Chinese brands like Chery and BYD may not be familiar on American roads yet, they are common in Mexico. Over the past three years, nine Chinese brands have established a presence in the country, and in 2022, Mexico imported more light vehicles from China than from the US for the first time in history.
But what does this have to do with American car sales? Mexico, Canada and the United States have entered into a trade pact, USMCA (United States-Mexico-Canada Agreement), which allows cars made in Mexico to pass free across the border. It’s a deal that gives companies like BMW, GM, VW and Ford the ability to build vehicles south of the border at reduced costs due to the lower wages it pays workers, and sell them in America at the full American market price. This is the same deal that will allow Chinese brands like BYD to set up manufacturing plants in Mexico and export cars to the US, handily bypassing the high tariffs imposed on cars imported into the US from China.
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The benefits would apply to both complete cars and components such as electric vehicle batteries. Under the Inflation Reduction Act, an electric vehicle and its battery must be manufactured in the U.S. to qualify for the full $7,500 tax credit, but thanks to the USMCA, Mexico counts as U.S. soil, as does Canada.
Related: Would you care if your car was built in China?
While U.S. automakers and policymakers should be concerned about this threat to their domestic auto industry, Mexico is understandably keen to facilitate China’s expansion plans. It received $397 million in investments last year, up from $86 million in 2020. Motor trendReporters spoke with a Chery executive who confirmed that the company has a long-term plan to enter the United States through Mexico, and that this is not the only plan.
This was announced by a Mexican economic development official in Nuevo Leon, right on the border with Texas MT that he was in talks with representatives of several Chinese car manufacturers who want to build a factory in his region with the aim of exporting cars to America. SAIC, the owner of the MG brand, is one of such companies.
So is China’s global takeover complete? Not necessarily. David Dollar, a senior fellow for foreign policy at the Brookings Institute, believes Chinese brands will be hesitant to push too far into the U.S. market because U.S. lawmakers may change the rules if they see China has had too much success exploiting loophole in Mexico.
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