The United States-Mexico-Canada (USMCA) Free Trade Agreement is fast becoming a free trade agreement for the world, whereas any multinational with a presence in Mexico can set up shop and make the U.S. its number one target. China is doing that now.
The auto sector is top of mind for the Chinese. They know that most industrialized nations have a native auto sector. Korea followed in Japan’s footsteps. China is following in both. With tariffs on mainland China automotive, their automakers and auto parts manufacturers are heading to Mexico. Their prime market is the U.S.
Since June 2022, 29 Chinese auto parts manufacturers and car makers like native brand Chery and MG Motors (SAIC Motors of Shanghai bought the iconic British car company in 2007) have announced a combined $7.06 billion in investments in Mexico. Of the $14.2 billion in Chinese corporate investment in Mexico in 2022 and 2023, for example, a little less than half came from companies that make cars and car parts, based on a collection of local news articles and data from J.P. Morgan analysts led by Rebecca Wen.
Some of them came on the invitation of American automotive companies like Ford and Tesla.
In February 2023, Tesla announced a $5 billion assembly line in Nuevo Leon state, roughly a four hour drive from the Texas border. The factory will have the production capacity to build roughly 1 million Teslas annually, many of them U.S.-bound. Tesla parts suppliers followed them to Mexico in order to continue the relationship.
Plus, the USMCA has strict rules of origin. For an automaker to qualify for free trade, they need to source 75% of its parts locally, up from 62.5%. That would cut out a lot of China auto parts companies that have a long history of working with the big global car makers. In order not to lose market share to American or Mexican auto parts makers, they moved there instead.
Current rules of origin under the USMCA are based on production, not the origin of capital, and not punishment for corporate headquarters subsidizing their overseas subsidiaries in any way.
Policies like Sen. Josh Hawley’s (R-MO) bill to slap 100% tariffs on all Chinese auto imports, including those from Mexico, would require significant changes to the USMCA framework and are not necessarily permitted by international trade laws.
China Moves In
Chinese heavy equipment manufacturer, Lingong Machinery Group, aka LGMG, invested $5 billion in Nuevo Leon in October 2023. They’ll be building things like road work equipment and excavators, but they will also be leasing out factory floor space to various Chinese multinationals, including those in the auto space. This is mostly all catered towards making products bound for the U.S., though it is unclear exactly how much of that production will remain in Mexico. This depends on each individual company. But given its location near the Texas border, and the fact that Mexico is not a sizable car market, especially for EVs at this time, to warrant such big spending, it seems safe to say that the prime target here is for making cars and car parts for U.S. consumers.
“Nearshoring has the potential to boost the growth of Mexican manufacturing exports to the U.S. to an estimated $609 billion in the next five years,” Morgan Stanley said in a June 2023 report titled “Mexico is Poised to Ride the Nearshoring Wave.”
“If U.S. manufacturing is to be less dependent on China, we think the path will be via Mexico,” Morgan Stanley Research equity analyst Nikolaj Lippmann said in the research report. “Nearshoring is expected to be a long and sustained race that could help build new ecosystems in Mexico’s existing manufacturing hubs. Manufacturing exports represent about 40% of Mexico’s $1.3 trillion economy. This estimated surge, representing more than 10% of GDP, is made up of $94 billion in gains in well-established sectors such as automotive.”
China automakers and parts companies, out of an interest in globalizing and gaining market share, have been operating from Mexico since joining the World Trade Organization in 2001.
Eight auto parts companies were already in Mexico prior to the enactment of the 2018 Section 301 tariffs against China. Twelve new ones have moved into Mexico as of year end 2023.
The growth rate in the 5-year period beginning in 2019 was about 4.95 times faster than the growth rate over the 17-year period beginning in 2000. China went from one company to eight over that period, for a growth rate of 13%. But post-tariffs on China automotive, the growth rate for Chinese investments in Mexico, as measured by the number of companies incorporated from 2019 to 2023 was more than triple, at around 64%.
China’s Mexican-Made EVs
EVs and Mexico is China’s beachhead into the auto market throughout the hemisphere. China can, of course, greatly underprice their rivals. And of course China has entry level EVs that like the BYD Dolphin, that sell for $14,000.
China’s No. 1 selling EV maker, BYD, is looking to Mexico to make cars for the locals, and the U.S. BYD executives have been cautious to say that they are building for export, but the location of the factory will be telling. The closer to the U.S., or a Tijuana port, the more likely the new BYD assembly line has the U.S. EV market in its sights. If it is close to the Port of Veracruz, it will be safe to say what BYD’s main goals are.
On May 14, the Biden administration put high tariffs on EVs coming from China, but not on China EVs coming from Mexico. Many of these Chinese EVs will be reliant on Chinese auto parts companies, like battery giant CATL, which planned a $5 billion factory investment in Mexico. That investment, like a similar one in the U.S., is on hold.
Mexico’s provincial leaders – like those in Nuevo Leon – have been putting out the red carpet for China capital. But the government in Mexico City seems to have its concerns. In May, Mexico imposed temporary tariffs of 5% to 50% on 544 items. Although this was a universal tariff, China was the main reason for this decision.
Mexico’s trade deficit with China is growing.
Mexico exports to China….an increase of ~36%
2017: $6.69 billion
2018: $7.38 billion
2021: $9.07 billion
2022: $10.80 billion
2023: $9.15 billion
Source: TrendEconomy data.
China exports to Mexico…an increase of ~143%
2017: $35.90 billion
2018: $44 billion
(Post-Section 301 tariffs):
2021: $67.44 billion
2022: $77.53 billion
2023: $87.46 billion
Source: TrendEconomy data.
China passenger vehicle exports were valued at around $630 million in 2017, rising to $3.84 billion in 2023. Autoparts and accessories were valued at $1.44 billion in 2017 and tripled to $3.76 billion in 2023.
Mexico’s auto market is geared towards its domestic consumer and those in the U.S. and Canada. Exports of cars from Mexico to China, the world’s largest automotive market, fell from around $790 million in 2017 to under $275 million in 2023. But auto parts for all of those Chinese and American branded imported vehicles made there with the help of Mexican parts suppliers went from $413 million in 2017 to $943 million in 2023.
Still, nothing compares to trade going the other way. Mexico is not investing in China. China is investing in Mexico and Mexico’s top two manufactured goods export to the U.S. is the automobile and the parts inside of it.
Some 18% of Mexico’s manufacturing GDP is tied to the auto industry, according to government statistics.
Mexico is the world’s seventh-largest passenger vehicle manufacturer, producing 3.5 million vehicles annually. Eighty-eight percent of vehicles produced in Mexico are exported, with 76% destined for the United States. Established automakers in Mexico include Audi, BMW, Ford, General Motors, Honda, Hyundai, JAC Motors (China), Kia, Mazda, Mercedes Benz, Nissan, Stellantis, Toyota, Volkswagen, and Tesla. They all use Chinese parts, which is encroaching now on the native Mexican companies in the space.
China was the leading country of origin for new car sales in Mexico last year, accounting for 29% of new vehicles sold there. The U.S. was in 3rd place, and its share of total import penetration went from 32% in 2005 to 12%. In 2023, roughly 40% of total vehicles sold in Mexico were imported from Asia, and China was 19.5% of that.
Some 87% of Mexican auto parts are exported to the U.S. In terms of imports, the U.S. ranked as the No.1 source of autoparts and accounted for 54% with China in a distant second currently at a 14% market share. According to JP Morgan, only ~4% of auto parts companies in Mexico are Chinese auto parts companies, “but we are seeing increasing investments,” JP Morgan’s analysts from China and Mexico wrote in May.
China auto parts makers are also moving into the U.S.
For instance, the number of Chinese companies selling in the auto aftermarket has grown. In several cases, they have done this by cutting out their U.S. intermediary, setting up their warehouse in the U.S., importing their products from China or countries like Thailand or Mexico, and selling directly to U.S. distributors. Once in the distribution network, they then expand their product lines and can easily overwhelm domestic rivals with subsidized Chinese made priced products.
Between 2017 to present, there have been no demonstrated cases where a U.S.-based manufacturer beat out a Chinese company from supplying U.S. buyers. But the opposite has surely occurred.
“Since 2017, the number of Chinese manufacturers given awards by major automotive aftermarket distributors in the U.S. has increased by over 300%,” said David Rashid, Chairman at auto parts maker Plews & Edelmann. “Many products that were once produced in the U.S. are now almost exclusively sourced from China,” he said, naming items like CV axles, water pumps, and hose products used for brakes and power steering. Many other U.S. built products are on the same trajectory.
In the case of hydraulic power steering hoses, Plews’ historic U.S., Mexican and European competitors have either exited the market or reduced their offerings to highly specialized, lower-volume products. Chinese company Sunsong has “wiped out their brake hose competition,” Rashid said. “Plews is the last supplier standing in the way of Sunsong monopolizing yet another category.”
Like in Mexico, the core issue with Chinese auto parts manufacturers tends to be the “level playing field” theme so popular on Capitol Hill.
“The issue of China’s encroaching auto industry here demands urgent attention,” said Rashid. “Unfortunately for us and many other U.S. companies like us, China will inevitably force us to exit business segments where we are unable to compete. As U.S. automotive manufacturing capabilities diminish, U.S. market dependence on Chinese companies, and ultimately the Chinese state, will increase.”
China’s Auto Sector Is Moving to Mexico; 29 New Manufacturing Plants Set Up Since June 2022
The United States-Mexico-Canada (USMCA) Free Trade Agreement is fast becoming a free trade agreement for the world, whereas any multinational with a presence in Mexico can set up shop and make the U.S. its number one target. China is doing that now.
The auto sector is top of mind for the Chinese. They know that most industrialized nations have a native auto sector. Korea followed in Japan’s footsteps. China is following in both. With tariffs on mainland China automotive, their automakers and auto parts manufacturers are heading to Mexico. Their prime market is the U.S.
Since June 2022, 29 Chinese auto parts manufacturers and car makers like native brand Chery and MG Motors (SAIC Motors of Shanghai bought the iconic British car company in 2007) have announced a combined $7.06 billion in investments in Mexico. Of the $14.2 billion in Chinese corporate investment in Mexico in 2022 and 2023, for example, a little less than half came from companies that make cars and car parts, based on a collection of local news articles and data from J.P. Morgan analysts led by Rebecca Wen.
Some of them came on the invitation of American automotive companies like Ford and Tesla.
In February 2023, Tesla announced a $5 billion assembly line in Nuevo Leon state, roughly a four hour drive from the Texas border. The factory will have the production capacity to build roughly 1 million Teslas annually, many of them U.S.-bound. Tesla parts suppliers followed them to Mexico in order to continue the relationship.
Plus, the USMCA has strict rules of origin. For an automaker to qualify for free trade, they need to source 75% of its parts locally, up from 62.5%. That would cut out a lot of China auto parts companies that have a long history of working with the big global car makers. In order not to lose market share to American or Mexican auto parts makers, they moved there instead.
Current rules of origin under the USMCA are based on production, not the origin of capital, and not punishment for corporate headquarters subsidizing their overseas subsidiaries in any way.
Policies like Sen. Josh Hawley’s (R-MO) bill to slap 100% tariffs on all Chinese auto imports, including those from Mexico, would require significant changes to the USMCA framework and are not necessarily permitted by international trade laws.
China Moves In
Chinese heavy equipment manufacturer, Lingong Machinery Group, aka LGMG, invested $5 billion in Nuevo Leon in October 2023. They’ll be building things like road work equipment and excavators, but they will also be leasing out factory floor space to various Chinese multinationals, including those in the auto space. This is mostly all catered towards making products bound for the U.S., though it is unclear exactly how much of that production will remain in Mexico. This depends on each individual company. But given its location near the Texas border, and the fact that Mexico is not a sizable car market, especially for EVs at this time, to warrant such big spending, it seems safe to say that the prime target here is for making cars and car parts for U.S. consumers.
“Nearshoring has the potential to boost the growth of Mexican manufacturing exports to the U.S. to an estimated $609 billion in the next five years,” Morgan Stanley said in a June 2023 report titled “Mexico is Poised to Ride the Nearshoring Wave.”
China automakers and parts companies, out of an interest in globalizing and gaining market share, have been operating from Mexico since joining the World Trade Organization in 2001.
Eight auto parts companies were already in Mexico prior to the enactment of the 2018 Section 301 tariffs against China. Twelve new ones have moved into Mexico as of year end 2023.
The growth rate in the 5-year period beginning in 2019 was about 4.95 times faster than the growth rate over the 17-year period beginning in 2000. China went from one company to eight over that period, for a growth rate of 13%. But post-tariffs on China automotive, the growth rate for Chinese investments in Mexico, as measured by the number of companies incorporated from 2019 to 2023 was more than triple, at around 64%.
China’s Mexican-Made EVs
EVs and Mexico is China’s beachhead into the auto market throughout the hemisphere. China can, of course, greatly underprice their rivals. And of course China has entry level EVs that like the BYD Dolphin, that sell for $14,000.
China’s No. 1 selling EV maker, BYD, is looking to Mexico to make cars for the locals, and the U.S. BYD executives have been cautious to say that they are building for export, but the location of the factory will be telling. The closer to the U.S., or a Tijuana port, the more likely the new BYD assembly line has the U.S. EV market in its sights. If it is close to the Port of Veracruz, it will be safe to say what BYD’s main goals are.
On May 14, the Biden administration put high tariffs on EVs coming from China, but not on China EVs coming from Mexico. Many of these Chinese EVs will be reliant on Chinese auto parts companies, like battery giant CATL, which planned a $5 billion factory investment in Mexico. That investment, like a similar one in the U.S., is on hold.
Mexico’s provincial leaders – like those in Nuevo Leon – have been putting out the red carpet for China capital. But the government in Mexico City seems to have its concerns. In May, Mexico imposed temporary tariffs of 5% to 50% on 544 items. Although this was a universal tariff, China was the main reason for this decision.
Mexico’s trade deficit with China is growing.
Mexico exports to China….an increase of ~36%
2017: $6.69 billion
2018: $7.38 billion
2021: $9.07 billion
2022: $10.80 billion
2023: $9.15 billion
Source: TrendEconomy data.
China exports to Mexico…an increase of ~143%
2017: $35.90 billion
2018: $44 billion
(Post-Section 301 tariffs):
2021: $67.44 billion
2022: $77.53 billion
2023: $87.46 billion
Source: TrendEconomy data.
China passenger vehicle exports were valued at around $630 million in 2017, rising to $3.84 billion in 2023. Autoparts and accessories were valued at $1.44 billion in 2017 and tripled to $3.76 billion in 2023.
Mexico’s auto market is geared towards its domestic consumer and those in the U.S. and Canada. Exports of cars from Mexico to China, the world’s largest automotive market, fell from around $790 million in 2017 to under $275 million in 2023. But auto parts for all of those Chinese and American branded imported vehicles made there with the help of Mexican parts suppliers went from $413 million in 2017 to $943 million in 2023.
Still, nothing compares to trade going the other way. Mexico is not investing in China. China is investing in Mexico and Mexico’s top two manufactured goods export to the U.S. is the automobile and the parts inside of it.
Some 18% of Mexico’s manufacturing GDP is tied to the auto industry, according to government statistics.
Mexico is the world’s seventh-largest passenger vehicle manufacturer, producing 3.5 million vehicles annually. Eighty-eight percent of vehicles produced in Mexico are exported, with 76% destined for the United States. Established automakers in Mexico include Audi, BMW, Ford, General Motors, Honda, Hyundai, JAC Motors (China), Kia, Mazda, Mercedes Benz, Nissan, Stellantis, Toyota, Volkswagen, and Tesla. They all use Chinese parts, which is encroaching now on the native Mexican companies in the space.
China was the leading country of origin for new car sales in Mexico last year, accounting for 29% of new vehicles sold there. The U.S. was in 3rd place, and its share of total import penetration went from 32% in 2005 to 12%. In 2023, roughly 40% of total vehicles sold in Mexico were imported from Asia, and China was 19.5% of that.
Some 87% of Mexican auto parts are exported to the U.S. In terms of imports, the U.S. ranked as the No.1 source of autoparts and accounted for 54% with China in a distant second currently at a 14% market share. According to JP Morgan, only ~4% of auto parts companies in Mexico are Chinese auto parts companies, “but we are seeing increasing investments,” JP Morgan’s analysts from China and Mexico wrote in May.
China auto parts makers are also moving into the U.S.
For instance, the number of Chinese companies selling in the auto aftermarket has grown. In several cases, they have done this by cutting out their U.S. intermediary, setting up their warehouse in the U.S., importing their products from China or countries like Thailand or Mexico, and selling directly to U.S. distributors. Once in the distribution network, they then expand their product lines and can easily overwhelm domestic rivals with subsidized Chinese made priced products.
Between 2017 to present, there have been no demonstrated cases where a U.S.-based manufacturer beat out a Chinese company from supplying U.S. buyers. But the opposite has surely occurred.
“Since 2017, the number of Chinese manufacturers given awards by major automotive aftermarket distributors in the U.S. has increased by over 300%,” said David Rashid, Chairman at auto parts maker Plews & Edelmann. “Many products that were once produced in the U.S. are now almost exclusively sourced from China,” he said, naming items like CV axles, water pumps, and hose products used for brakes and power steering. Many other U.S. built products are on the same trajectory.
In the case of hydraulic power steering hoses, Plews’ historic U.S., Mexican and European competitors have either exited the market or reduced their offerings to highly specialized, lower-volume products. Chinese company Sunsong has “wiped out their brake hose competition,” Rashid said. “Plews is the last supplier standing in the way of Sunsong monopolizing yet another category.”
Like in Mexico, the core issue with Chinese auto parts manufacturers tends to be the “level playing field” theme so popular on Capitol Hill.
“The issue of China’s encroaching auto industry here demands urgent attention,” said Rashid. “Unfortunately for us and many other U.S. companies like us, China will inevitably force us to exit business segments where we are unable to compete. As U.S. automotive manufacturing capabilities diminish, U.S. market dependence on Chinese companies, and ultimately the Chinese state, will increase.”
MADE IN AMERICA.
CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.
TRENDING
Homeland’s Mayorkas Criticizes De Minimis, Says It Comes With Risks
Secretary Mayorkas Confirms: De Minimis Loophole is High Risk, Undermines Forced Labor Laws
Biden Administration Mexico Steel Agreement Will Have Little to No Effect on Imports from Mexico
Treasury Official Highlights Serious Problem: China Overproduces And Floods Global Markets With Products
China’s Auto Sector Is Moving to Mexico; 29 New Manufacturing Plants Set Up Since June 2022
The latest CPA news and updates, delivered every Friday.
WATCH: WE ARE CPA
Get the latest in CPA news, industry analysis, opinion, and updates from Team CPA.
CHECK OUT THE NEWSROOM ➔