To circumvent tariffs imposed on its exports to the United States, China is increasing its use of Mexico as a conduit. Beijing’s particular focus is on its automobile export market.
Its motive isn’t complicated. Cars and car parts imported from Mexico face tariffs of 0%-6%. Meanwhile, cars and car parts imported directly from China pay 25%.
As China struggles to boost economic growth, a strategic priority for Xi Jinping’s Communist Party, tariff evasion makes good sense. But from America’s perspective, it should be unacceptable. The U.S. should force Mexico to ensure it is not helping China undermine U.S. tariffs.
The U.S. import market is too important to Mexico for President Andres Manuel Lopez Obrador to ignore. According to the World Bank, U.S.-destined exports account for 78% of Mexico’s export market. Even a small reduction would cause significant harm to Mexico’s economy. While Obrador’s preferred candidate is leading in the polls for the June presidential election, economic strife with the U.S. might threaten this lead.
The U.S. could warn Mexico that unless it introduces legislation to ensure Chinese conformity with U.S. tariff payments, Washington will slap tariffs on one or more of the big three Mexico-to-U.S. export sectors. These are the automobile, machinery, and electrical equipment sectors. Exports approach 45% of Mexico’s total gross domestic product. The country could not easily tolerate even moderate U.S. tariff actions.
Chinese-manufactured cars are not as problematic as the fentanyl that China floods across the U.S.-Mexico border, but they do represent a deliberate effort to damage American prosperity. They are central to Xi’s effort to destroy the U.S. automobile industry by flooding the marketplace with cheaper Chinese cars. Xi is applying the same strategy toward the European Union, earning rare ire from Sino-friendly French President Emmanuel Macron.
China’s cars are cheaper for two reasons. First, union domination of U.S. and European automakers makes them inefficient. Unions divert resources from productive enterprises toward unsustainable salaries and pensions. Second, China blatantly subsidizes its automakers, making a mockery of World Trade Organization rules. These subsidies prompted the Trump administration to impose tariffs on China in the first place.
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China would react fiercely to any Mexican effort to prevent tariff evasion by Chinese interests. China’s investment into Mexico is growing significantly, and the two countries maintain good relations. Yet Mexico has far more to gain or lose from the U.S. than it does from China. In 2023, U.S. direct investments in Mexico were 600 times greater than Chinese direct investments. The Mexican economy is dependent on U.S. trade, not Chinese trade. Forced to choose between Beijing and Washington, Obrador would go with the latter.
This isn’t ultimately about Mexico, of course. The U.S. should seek mutually productive economic relations with Mexico. Benefitting from its trade with the U.S., Mexico has been able to develop its economy, improve the lives of its people, and reduce Mexican-origin immigrant pressure on the U.S. border. All of these things are positive. We should hope trade with Mexico grows. What is not positive is China’s manipulation of Mexico to serve its own ends. Obrador and his government must be made to understand that the U.S. will not allow Beijing’s deceptions to continue, and Washington will take all necessary action to ensure they are ended