Trump’s threats mask bipartisan USMCA concerns on China
Republican Presidential candidate Donald Trump next to Sarah Huckabee Sanders at a campaign event in Flint, Michigan on 17 September, 2024. Image credit: Paul Sancya, Associated Press.
Donald Trump fired another shot across Mexico’s bow this week. Speaking to Sarah Huckabee Sanders at a campaign event in Flint, Michigan, Trump said he would slap 200% tariffs on all Chinese car imports from Mexico if he wins November’s election. His objective, he said, is to make Chinese car imports from Mexico "unsellable" in the US.
The comment raised alarm. The US - Mexico relationship is already strained by President López Obrador's (AMLO) late term provocations. If enacted, Trump's plan could bring things closer to breaking point.
Auto imports from Mexico to the US must contain 75% American-made parts to qualify for benefits under the USMCA, which Trump’s first administration negotiated. But the issue runs deeper. The Coalition for a Prosperous America says Chinese auto firms have poured $7 billion into Mexico over the past year. During AMLO's term, Chinese investment in Mexico has skyrocketed - up 98% since 2018, from $44 billion to $87.5 billion by 2023.
This influx of Chinese money goes beyond auto parts. The money spills into industries like heavy machinery and battery manufacturing. Both of which could strengthen China's auto sector in Mexico. But Trump’s position on this isn’t an outlier. The Biden administration has already slapped 102% tariffs on Chinese EVs. There is no Chinese auto manufacturing presence in Mexico. It remains plausible that a future Harris administration would use the upcoming USMCA review to tighten restrictions further on Chinese manufacturing in Mexico. Harris and Trump might not be as far apart on this as their rhetoric suggests.
Chinese investment in Mexico pales compared to that of America’s. But US investment has slowed. The recent constitutional reforms passed by Morena are creating uncertainty, prompting American investors to wait and see how events play out. Trump's plan is incoherent due to the lack of Chinese auto manufacturing in Mexico. If applied toward Chinese investments in Mexico in general, however, it could provide real added pain to Mexico as its economy slows.
Mexico's Finance Minister, Rogelio Ramírez de la O, flagged the issue this summer. In August, he launched a review of Mexico-China trade. He's even proposed replacing up to 10% of Chinese imports with North American production. But with rumours flying that Ramírez de la O will step down after the 2025 budget, maybe even he doesn’t see an easy fix to these growing tensions. AMLO has gifted Claudia Sheinbaum a fraught inheritance. The road ahead was already bumpy. It just got bumpier.
Editor’s Note: This article was amended on 3 October to clarify the lack of Chinese auto manufacturing presence in Mexico.