Chinese automakers enter US through Mexico serious threat: trade group

BYD EVs are waiting to be loaded onto a ship in China this month. STR/AFP via Getty Images

China has become a powerhouse in the field of electric vehicles. Automaker BYD recently topped Tesla when it comes to global electric vehicle sales, while Elon Musk recently warned about Chinese automakers: “If trade barriers aren’t put in place, they will virtually wipe out most of the world’s other auto companies. They are very good.”

On Friday, the Alliance for American Manufacturing sounded the alarm, releasing a report titled: “On a Collision Course: China’s Existential Threat to the U.S. Auto Industry and Its Route Through Mexico.”

The report, which lists policy recommendations to combat overcapacity and unfair trade practices, notes that BYD is building factories in Thailand and Hungary that are designed as regional export hubs. Then it is added:

“More alarming, however, is the high spending by Chinese companies on factories in Mexico, which allows them to gain access to the United States through the more favorable tariffs under the United States-Mexico-Canada Agreement (USMCA). This strategy is essentially an attempt to gain backdoor access to American consumers by circumventing existing policies that keep Chinese cars out of the U.S. market.”

In the US, Chinese-made electric vehicles are currently subject to a 25% tariff, on top of a 2.5% tariff on imported cars. That has prevented them from making significant progress. However, production in Mexico could change the equation.

Lawmakers in the House of Representatives recently warned of China’s “industrial strategy to dominate the global auto market” and its EV makers “getting a backdoor into the U.S. market through our major trading partners.” They called for maintaining or even increasing existing tariffs on cars made in China and described a “coming wave” of Chinese vehicles that “will be exported from our other trading partners, such as Mexico.”

The Financial times recently reported that Chinese automakers including MG, BYD and Chery are looking for production sites in Mexico. Meanwhile, imports of Chinese cars into Mexico have soared.

While Musk credits Chinese EV manufacturers for being “extremely good,” the Alliance for American Manufacturing focuses more on the government support they receive, writing:

“Backed by heavy state support, Chinese automakers and suppliers have emerged as industrial powerhouses controlling the manufacturing hubs for virtually the entire electric vehicle value chain.”

BYD, backed by Warren Buffett’s Berkshire Hathaway, keeps its costs low, in part by owning the entire supply chain of its EV batteries — important because a battery makes up about 40% of the price of an electric vehicle.

“No one can match BYD on price. Period,” Michael Dunne, CEO of Asia-focused automotive consultancy Dunne Insights, recently told the paper Financial times. “Boardrooms in America, Europe, Korea and Japan are in shock.”

Ford CEO Jim Farley recently said that to counter the Chinese threat, he is open to working with rivals in battery production. His GM counterpart Mary Barra made similar comments.

That threat is scarier than many people realize, according to the Alliance for American Manufacturing. It writes:

“The introduction of cheap Chinese cars – which are so cheap because they are backed by the power and financing of the Chinese government – ​​into the US market could ultimately become an extinction event for the US auto sector.”

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