Low-priced Chinese EVs entering US from Mexico threaten automakers

A scenario troubling America’s auto industry involves Chinese carmakers potentially setting up in Mexico to exploit North American trade rules. This would enable them to flood the U.S. market with ultra-low-priced electric vehicles (EVs), significantly cheaper than American EVs, which average around $55,000. Such competition could lead to factory closures and job losses in the U.S. This echoes past issues where government-subsidized Chinese competition affected American industries like steel and solar equipment. Senator Sherrod Brown has called for a ban on Chinese EVs to prevent similar devastation. The Alliance for American Manufacturing has warned that these low-priced Chinese EVs could severely impact the U.S. auto industry.

The U.S.-Mexico-Canada Agreement (USMCA), enacted in 2020, could allow Chinese EVs assembled in Mexico to enter the U.S. either duty-free or at a nominal 2.5% tariff. To counter this, U.S. Customs could rule these EVs ineligible for low-duty benefits, or policymakers might pressure Mexico to keep Chinese EVs out. Another option is barring Chinese EVs on national security grounds. Former President Trump suggested imposing a 100% tariff to prevent market disruption.

Chinese EVs entering the U.S. market pose a threat as U.S. automakers face slowing EV sales despite heavy investments. High prices and concerns about charging infrastructure have hindered EV adoption in the U.S. Some argue that allowing low-priced Chinese EVs could boost U.S. EV sales and infrastructure development. However, China dominates global EV production, accounting for nearly 62% of the world’s EVs, with the U.S. producing less than 10%. Chinese automakers, supported by substantial government subsidies, have achieved significant technological and cost-efficiency advancements.

President Biden recently increased tariffs on Chinese EVs to 102.5% to counteract this threat. However, the USMCA allows cars assembled in Mexico to enter the U.S. at lower tariffs if they meet specific requirements. This could provide a loophole for Chinese EV makers. Experts suggest that the U.S. could use national security arguments to block Chinese EVs due to potential risks of espionage through advanced vehicle technology.

The U.S. could also leverage its relationship with Mexico to prevent Chinese investments in Mexican EV assembly plants. The upcoming USMCA review in 2026 presents an opportunity for the U.S. to negotiate stricter provisions against Chinese EVs. In the current trade environment, where the World Trade Organization’s influence has waned, the U.S. has more flexibility to take unilateral actions.