US 'must close' Mexican backdoor for Chinese OEMs

Chinese firms accessing US market poses "existential threat" to American auto industry, AMM says

US 'must close' Mexican backdoor for Chinese OEMs
Chinese firms BAIC and JAC currently have Mexican facilities

A new report from the Alliance of American Manufacturing (AAM) has called for lawmakers to crack down on Chinese automakers' investments in Mexico, which provide a so-called "back-door" entry into the US market.

AAM argues that highly competitive Chinese OEMs which are "buoyed by the Chinese state" pose an "existential threat to America's auto industry" if their ability to circumvent US tariffs via manufacturing in Mexico is allowed to continue.

Chinese automakers BAIC and JAC have built plants in Mexico, and media reports suggest that global EV sales leader BYD is also planning a facility in the country.

This allows the OEMs to export EVs to the US under favourable tariffs as part of the United States-Mexico-Canada Agreement (USMCA). Final assembly in Mexico also qualifies an EV for up to $7,500 in purchase discounts under the Inflation Reduction Act.

So far there are strong indications that the USMCA has not rebalanced trade, AAM says, but rather "created disproportionate investments into Mexico, including from Chinese entities."

"This strategy is, in effect, an effort to gain backdoor access to American consumers by circumventing existing policies that are keeping China’s autos out of the U.S. market," AAM continues.
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The report recommends that policymakers should determine eligibility for US tax incentives based on where automakers are headquartered, rather than where specific vehicles are assembled. This would echo recently amended Foreign Entity of concern rules regarding battery raw materials.

"Washington should raise tariffs further on Made-in-China vehicles, tighten and fully enforce the USMCA’s ROO so they are not allowed to leak in, and exclude from the pact’s preferential treatment components and vehicles made by companies headquartered in non-market economies like China," the report says.

It also recommends that US legislators fully enforce domestic content preference policies, including a 'buy American' law for vehicles components, as well as enact the Invent Here, Make Here Act of 1956 to prevent China from accessing taxpayer-funded R&D.

US-based Tesla is also soon breaking ground on a plant in the state of Nuevo Leone, in which it is likely to install Chinese-made Catl batteries.

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