Why politicians and industry groups are calling Mexico a 'backdoor' for Chinese EV automakers

Politicians and auto industry groups in the U.S. and Canada have upped their criticism of Mexico, expressing concern that the country is becoming a haven for Chinese automakers trying to circumvent North American tariffs on its products.

Ontario Premier Doug Ford suggested this month that Mexico be kicked out of the Canada-United States-Mexico-Agreement (CUSMA), the trilateral trade agreement that will be up for review in 2026.

Ford said that Mexico has become a "backdoor" for Chinese auto part makers and car manufacturers, amid a growing perception that Mexico is allowing Chinese manufacturers to set up shop on its shores to circumvent strict tariffs imposed by the U.S. and Canada.

The U.S. and Canada penalized Chinese electric vehicles, steel and aluminum this year in a bid to combat Chinese overcapacity and shore up domestic manufacturing. Some have criticized Mexico for not matching the tariffs in solidarity with its North American trade partners, and U.S. president-elect Donald Trump has threatened to slap Mexico with additional tariffs. Mexican officials have warned that the country would retaliate.

Ford's claim about Mexico is "making the rounds in Washington, and has been for some time, that the Chinese have redoubled their efforts to find a way into North America, and they're looking at all of the opportunities [to do so]," said Flavio Volpe, president of the Automotive Parts Manufacturers' Association, during a recent interview on CBC's Metro Morning.

Trump has promised a 10 per cent tariff on all imported goods and has indicated that his administration will renegotiate the terms of CUSMA (also known as USMCA). Trump has accused China of bypassing the agreement by importing car parts into the North American market via Mexico.

There was a 60 per cent surge in shipping container exports from China to Mexico in January 2024 from the same time last year, according to an analysis by shipping intelligence firm Xeneta, with the author suggesting the possibility that China is using Mexico to circumvent tariffs by the U.S.

In the U.S., the Trump and Biden administrations have "used protectionism as a way to kind of make sure that the investments in electric vehicles particularly, and automotive plants especially, don't get eroded by this idea of a backdoor," said Dimitry Anastakis, a professor of Canadian business history at the University of Toronto.

How does that backdoor work? Tariffs apply to exports (for example, cars that are built in China and then shipped to North America). By slapping tariffs on exports, they become more expensive for the consumer, who might then be incentivized to buy a less expensive, domestic-made option.

Under the current terms of the trade agreement, countries have to hit a certain percentage of North American content to qualify as a duty-free export — namely, 75 per cent for cars and "core" auto parts. Between 40 and 45 per cent of the product has to be made by workers earning a minimum wage of $16 US per hour.

But some fear those conditions are being circumvented through a process called "transshipment," in which Chinese raw materials are brought to and assembled into a final product in Mexico — with a made-in-Mexico label — ultimately exempting the product from U.S./Canada tariffs.

"The fear is that there's going to be re-importation, that they're going to have a system where the Chinese are able to set up rudimentary facilities that kind of look like their assembly facilities, do a basic, low-level content that may have some North American content, but in fact, it is a sneaky way to get through the backdoor in an effort to avoid the tariffs that have been imposed by Canada and the United States," said Anastakis.

Juan Carlos Baker Pineda, Mexico's former vice-minister for external trade, was quoted by the BBC saying that while the Chinese origin of materials coming into Mexico "may be uncomfortable for the policies of some countries ... according to international trade legislation, those products are, to all intents and purposes, Mexican."

Some industry groups and lawmakers have called on Canada and the U.S. to block auto part imports from Mexico that originated in China, saying that the practice could have dire consequences for the domestic auto industry.