Background and Relevance of the Investments
In the last five quarters ending March 31, 2025, Foreign Direct Investment (FDI) in Mexico’s automotive sector has soared to $2,144 million, according to data from Mexico’s Secretariat of Economy. These investments are directed towards wholesale trade in trucks, cars, and auto parts amidst the entry of multiple Chinese brands into the Mexican market and changes in competition and competitiveness within the sector due to tariffs imposed on it in the United States and other countries.
Historical Context and Impact
The accumulated amount over the last five quarters represents 74.1% of the total FDI that Mexico has attracted in this economic subsector since January 2006. Mexico had positive FDI balances in its automotive trade for each of these quarters, following three consecutive years of negative balances.
FDI capture reached a record-breaking $1,083 million in the first quarter of 2025, surpassing the total for all of 2024 when inflows were $1,061 million. These figures are comparable to FDI in Mexico’s non-metallic minerals mining sector over the same period, which totaled $2,142 million, including gold, silver, lead, copper, zinc, and iron among others.
Automotive Market Performance
From January to May 2025, Mexico saw the sale of 593,284 light vehicles, a 0.9% increase compared to the same period in the previous year, according to Inegi data. However, during those five months, Mexico reported retail sales of 22,089 heavy vehicles, marking a 20.9% interannual decline.
Chinese Investment Criticism
Concerns Over Chinese Involvement
Discussions on China’s growing presence in the Mexican market have largely focused on the increasing Chinese brand participation and integration of Chinese inputs, parts, and components into Mexican export products. An International Trade Commission (USITC) report from 2024 highlighted concerns from commentators like the United Auto Workers (UAW) and the Labor Advisory Committee for Trade Negotiations and Trade Policy (LAC) regarding the volume of Chinese FDI in Mexico’s automotive sector.
The UAW represents workers in the US and Canadian automotive industries, including car manufacturers, parts suppliers, and related workers. The LAC comprises local and national union representatives, collectively representing over 16 million US workers.
Both organizations urged the United States to collaborate closely with Canada and Mexico to scrutinize these Chinese investments and ascertain whether automotive content entering the North American supply chain is linked to Chinese enterprises supported by their government.
Adam Hersh, Senior Economist at the Institute for Policy Studies, echoed these concerns, arguing that the “accumulation” concept in regional value content calculation allows for an exponential increase in non-North American proportion as components transform through the value chain.
Hersh also pointed out that a substantial amount of non-North American content benefits from tax credits under the Inflation Reduction Act (IRA).
Key Questions and Answers
- What is the main issue discussed? The growing participation of Chinese brands in Mexico’s automotive market and the concerns over Chinese FDI in this sector.
- Why are there concerns about Chinese investments? Commentators, including the UAW and LAC, worry that these investments aim to circumvent tariffs on direct imports from China under Sections 232 and 301.
- Who are the main parties expressing concern? The United Auto Workers (UAW) and the Labor Advisory Committee for Trade Negotiations and Trade Policy (LAC), representing millions of US workers.
- What recommendations have been made? The UAW and LAC urge the US to collaborate with Canada and Mexico to examine Chinese investments closely and ensure that automotive content in the North American supply chain is not linked to government-supported Chinese enterprises.
- What additional concerns have been raised? Adam Hersh, an economist, has expressed worries that the “accumulation” concept in regional value content calculation allows for a significant increase in non-North American content, benefiting from tax credits under the Inflation Reduction Act (IRA).
