Background on Key Players and Relevance
The United States International Trade Commission (USITC) highlighted the substantial growth of Chinese investments in Mexico’s automotive industry over recent years. This development has drawn attention from the European Union, as it impacts trade dynamics and market access.
Investment Trends
According to the USITC’s report, “Rules of Origin Automotive under T-MEC: Economic Impact and Operation 2025,” Chinese investments in Mexico’s automotive sector have been on the rise.
- From 2019 to 2023, Chinese automotive companies announced 32 greenfield investments (new projects) in Mexico, placing it fourth after the United States, Germany, and Japan.
- Out of these investments, 11 (34%) occurred in 2023.
- China’s participation in global automotive manufacturing investment increased from 5.1% during 2013-17 to 10.5% during 2018-22.
These investments primarily focus on vehicle and auto parts production, accounting for nearly half of China’s corporate investments in Mexico (7,060 million USD) in 2022 and 2023.
From January 2023 to May 2024, 35% of China’s announced investments in Mexico supported electric vehicle production, potentially backed by Chinese government subsidies.
Reasons Behind Investments
Multiple sources suggest that Chinese companies aim to use Mexico as a gateway to the US market and circumvent US tariffs and economic sanctions.
- The USITC correlates Chinese investment in Mexico’s automotive industry with increased Chinese auto parts exports to Mexico and Mexican vehicle and auto parts exports to the US.
- Mexican imports of auto parts from China rose from 11,400 million USD in 2019 to 13,200 million USD in 2024.
- Mexican exports of vehicles and auto parts to the US increased from 99,000 million USD in 2019 to nearly 183,000 million USD.
A labor representative informed the USITC that the growing proportion of US-imported vehicles from Mexico not claiming T-MEC preference indicates Chinese companies exploiting low labor costs in Mexico without increasing content to meet origin rules.
The same representative suggested that China might establish vehicle assembly or auto parts production in Mexico, pay the nation’s most-favored-nation tariff (2.5%), and access the US market free of section 232 and 301 tariffs.
Mexico’s Attractiveness for Chinese Investment
Beyond tariff avoidance, Mexico offers several advantages for Chinese investment:
- Shared border with the US, a significant market for motor vehicles and auto parts.
- Seventh-largest vehicle producer globally and a major global auto parts supplier.
- Exports the majority of its annual vehicle production, with 76% destined for the US.
- 13 free trade agreements with 50 countries position Mexico as a potentially valuable export platform.
- Low labor costs, with manufacturing hourly wages in Mexico (4.82 USD) being lower than China’s (6.50 USD) in 2020.
Factors Driving Investment Expansion
Multiple overlapping economic, political, and geopolitical factors have fueled the expansion of Chinese investments in Mexico:
- Preferential tariffs under the T-MEC
- Rising labor costs in China
- Tensions between the US and China
- Tariffs and other restrictions imposed by both countries on imported goods
The COVID-19 pandemic, while disruptive, has also accelerated these trends. Trade disruptions caused by the pandemic have heightened governments’ awareness of their reliance on China and the growing vulnerability of global supply chains to disruptions.
This awareness has further encouraged the USITC to consider certain vehicle components (e.g., semiconductors and batteries) as strategic.
