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China Dominates Mexican Automotive Market, Sparking U.S. Concerns
China has emerged as the leading auto supplier in Mexico, with exports reaching an impressive $4.6 billion in 2023, according to figures from Mexico’s Secretariat of Economy.
The Chinese automaker BYD has overtaken both Honda and Nissan, becoming the seventh largest car manufacturer globally in terms of units sold during the second quarter of the year. This remarkable rise has been fueled by a surge in demand for its budget-friendly electric vehicles, as reported by automakers and research firm MarkLines.
In the latest quarter, BYD’s new vehicle sales escalated by 40 percent year-on-year, totaling 980,000 units. This increase occurred at a time when many major car manufacturers, including Toyota and Volkswagen, reported lower sales figures. Notably, BYD’s international sales nearly tripled over the past year, reaching 105,000 units, prompting the company to consider establishing a new manufacturing plant in three Mexican states: Durango, Jalisco, and Nuevo Leon.
The potential investment from BYD could significantly benefit Mexico’s economy, with the company claiming that the facility could generate around 10,000 jobs. Competing with Tesla, BYD sells its Dolphin Mini model in Mexico for approximately 398,800 pesos (around $21,300), making it just over half the price of the least expensive Tesla model.
Chinese electric vehicle manufacturers, facing tariffs that prevent them from selling directly to the U.S., have sought alternative markets for their advanced vehicles. However, as Mexico becomes a crucial market for these electric cars, U.S. officials have expressed concerns that Mexico might serve as a "back door" to the American market.
This unrestricted access to the U.S. market is facilitated by the US-Mexico-Canada Agreement (USMCA), which is a revised version of the North American Free Trade Agreement that eliminated tariffs on numerous products traded among the three countries starting in 2018. Under this agreement, if a foreign car manufacturer produces vehicles in Canada or Mexico and can prove that the materials used are sourced locally, their products can be exported to the U.S. without incurring duties.
According to government statistics, 20 percent of light vehicles sold in Mexico last year were imported from China, translating to 273,592 units, which marks a 50 percent increase from 2022. Currently, a majority of these imports come from Western brands that have manufacturing operations in China, such as General Motors, Ford, Chrysler, BMW, and Renault.
Mexico ranks as the second-largest market for Chinese automobiles worldwide, trailing only Russia, according to data from Linked Global Solutions, a company that facilitates business between China and Latin America.
A Trade War Against China
The United States and the European Union have intensified a trade conflict with China, particularly targeting the automotive and semiconductor sectors due to investigations into unfair practices, tariffs, and other restrictions. This geopolitical shift is encouraging Western companies to seek alternatives by relocating their factories outside of China, a process known as "nearshoring."
To safeguard its domestic auto industry, the U.S. has increased tariffs on Chinese electric vehicles to 100 percent, while Canada is also contemplating similar tariffs for vehicles manufactured in China.
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