China has sent Mexico a strong message about its decision to hike tariffs on cars coming from Asia. The original proposal’s increase would be an increase in tariffs from 20% up to 50%. Both are growth-inducing, which has raised eyebrows in Beijing, particularly given the extensive economic interlinkages between the two countries. Even more recently, the Chinese government has denounced the initiative, warning Mexico to “think twice before acting.”
China’s dominance in the supply chain for critical minerals These minerals are necessary to build the cars of the future, not to mention other high-tech products. Chinese investments in Mexico have skyrocketed. The Coalition for a Prosperous America reports that more than 20 auto parts manufacturers have pledged investments exceeding $7 billion to the area. In addition, starting this past March 2023, China’s automotive industry has laid claim into Mexico, bringing in 29 roof factories.
Chinese electric vehicle manufacturer BYD released their first micro and small buses, led by the Leopard 8, on April 16, 2024. In a sign of flagging fortunes, it still has not produced the long-promised factory in Mexico. This unexpected delay contributes to the growing drama and uncertainty around the future of Chinese automotive investments in the country.
China’s Ministry of Commerce responded to Mexico’s tariff proposal by stating, “China will take necessary measures … to resolutely safeguard its legitimate rights and interests.” And China is prepared to act. This may be through, for example, placing limits on the export of key minerals necessary for auto-making and technology manufacturing.
Eugene Hsiao, head of China equity strategy at Macquarie Capital, reflected on the increased competition cutting into the CoE’s 2013 lead. “The thing that’s very important about Chinese autos is that where they’re taking market share, a lot of times, it’s not really from the Western brands. It’s really from the other Asian brands. I believe that’s what we’ve witnessed in Mexico,” he said. Hsiao noted that despite potential tariffs, “the value proposition for a lot of these Chinese cars remains intact.”
Some auto industry observers say that China is Mexico’s most important car export market. This reality was highlighted by news just a few months ago from the China Passenger Car Association. Unsurprisingly, the auto industry is central to Mexico’s economy and serves as the country’s largest employer. Any further tariffs would be felt acutely in this essential sector.
Jorge Guajardo, a partner at Dentons Global Advisors in Washington D.C., underscored the importance of the auto industry for Mexico’s economy. As an immediate reaction to the recent assaults on the sector, he made the above statement. He pointed out that “Mexico’s auto industry is the country’s largest employer,” suggesting that any disruptions could have significant impacts.
As these high-stakes negotiations move forward, both countries should not forget the essentiality of each other as trading partners. China’s Ministry of Commerce, for one, sees cause for optimism. Their overriding assumption seems to be that US-China and US-Mexico economic cooperation will trump everything, even in a post-Trump world.