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Report: Chinese Threat in Mexican Auto Sector Must Be Stopped

Allowing large numbers of electric vehicles from Chinese companies assembled in Mexico would be an "extinction event," warned the Alliance for American Manufacturing, a nonprofit co-founded by large domestic manufacturers and the United Steelworkers union.

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The group's new report, "On a Collision Course: China’s Existential Threat to America’s Auto Industry and its Route Through Mexico," quoted Tesla CEO Elon Musk's comment in January: “If there are no trade barriers established, they [Chinese electric vehicle manufacturers] will pretty much demolish most other car companies in the world. They’re extremely good.”

The report noted that China poured nearly $39 billion in support to EV automakers from 2009 to 2022, with the idea that as cars transition from gas-powered to electric batteries, Chinese companies would have "an opportunity to overtake the incumbents."

Last year, China became the world's largest car exporter, and China's BYD became the world's largest EV company.

The AAM said that USMCA and policy toward Chinese foreign direct investment in Mexico must change, because the U.S. cannot continue to rely on its 27.5% tariffs on cars from China to keep the vehicles out of the U.S. market.

The report recommended that cars and parts manufactured by companies headquartered in China or other non-market economies be barred from trade benefits under USMCA or the Generalized System of Preferences benefits program.

U.S. negotiators also should insist on excluding China’s state-owned or affiliated companies from benefiting from USMCA by setting up facilities in Mexico or Canada as a means of avoiding U.S. trade policies and enforcement mechanisms, it said. Data indicates an alarming flow of investments into Mexico at the expense of the United States. Similar mechanisms should be adopted as part of reforms to the GSP program and other trade agreements.

The report said that it's good that the U.S. is talking with Mexico about establishing investment screening for national security, and argued that the amount of data associated with EVs should make investments from foreign countries of concern questionable.

However, the author added, in the meantime, the administration should take unilateral actions to evaluate select investments in conjunction with USMCA regional content value and labor value content certifications.

The report didn't say what authority could be deployed to do that, though former President Donald Trump threatened to use the International Emergency Economic Powers Act to put tariffs on all Mexican exports.

The House Select Committee on China previously urged the administration to see what could be done about BYD, Chery and SAIC Motor Corp. facilities in Mexico, and U.S. Trade Representative Katherine Tai responded that her agency and Congress "will need to work closely together" to address the fact that "existing rules of origin have left openings" for Chinese firms with operations outside China to avoid Section 301 tariffs and, depending on where the operations occur, benefit from free trade agreements (see 2401170058).

The AAM also recommended that Congress pass the Level the Playing Field Act, which would make changes to antidumping and countervailing duty laws to make it easier for Commerce to counter extraterritorial subsidies and country-hopping, and would speed up investigations.

It said the U.S. should impose import surge protection safeguards against China's automotive sector, a safeguard linked to China's accession to the World Trade Organization. It said it would be justified because China has not met its WTO commitments.

The report said the U.S. should tighten USMCA auto rules of origin, including ending roll up and improving transparency in labor value content, and said the 2026 joint review is an opportunity to do so, particularly for metals and batteries.

"Similar mechanisms should be adopted in all U.S. trade agreements as well as in reforms to the Generalized System of Preferences (GSP) program," the report said.

The AAM wants Treasury to reverse itself on rules for the Inflation Reduction Act tax credits for EVs, no longer allowing leased vehicles to avoid North American and foreign entity of concern content rules.

All these actions are needed, the report argues, because of the centrality of auto manufacturing, which employs about 1 million in the U.S., with jobs paying an average of $29/hour.

It said USMCA labor value rules have not moved more work to the U.S., as shown by a U.S. trade deficit with Mexico in auto parts increasing by $9 billion, and the vehicle trade deficit increasing by $12 billion between 2018 and late 2023.