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US Escalates Pushback Over Chinese Automakers' Continued Nearshoring Abuses in Mexico Ahead of 2026 USMCA Renegotiation

In a move with significant geopolitical ramifications, the US is escalating concerns over potential exploitation of the USMCA trade agreement by Chinese automakers in Mexico. This multi-billion dollar industry, crucial to both nations' economies, faces unprecedented scrutiny due to national security fears. The White House, citing risks like sensitive data collection and control of connected vehicles, is pressuring Mexico to address these issues before the 2026 USMCA renegotiation. This high-stakes situation could lead to revised trade agreements or even the potential termination of the USMCA, raising questions about the future of US-Mexico automotive collaboration and the broader global trade landscape.

Consequences of Escalating Nearshoring Abuse Concerns to National Security Concerns

On February 29, the White House released an official statement escalating the practice of Chinese auto manufacturers colluding with certain elements in Mexico as a National Security Risk (text included at the end of the article). By so doing, the stakes have been raised and more tools and resources are now available to combat and contain the threat.

As Emerging Real Estate Digest has previously reported, the vast majority of nearshoring activity and investment is from Chinese companies looking to game the USMCA framework. Very few American companies are selecting Mexico, from the myriad of other options, due to a variety of factors including rising costs, unfavorable business climate, unfriendly federal government, opaque regulations, and skills shortages for critical functions.

Escalating the matter to a national security matter empowers the American government to take more decisive action and view the issue through a new paradigm. A broader range of tools and powers become available to neutralize the economic and political adversary so that Washington DC feels secure with CCP-animated companies making such large investments in nearby Mexico.

Some examples of specific powers now enacted and available to contain China in Mexico are:

  • Ability to bypass Congress to pass more sanctions and restrict the movement of goods from Mexico into America,

  • Expanded authority for intelligence agencies to engage and more aggressively gather intel,

  • Emergency powers could be implemented to swiftly protect the national interest circumventing judicial and congressional oversights,

  • Politically, framing the issue as a national security measure should send the proper message to Mexico City and other nations involved that the playing field has changed, and

  • More financial resources are now unlocked to contain and understand the threat.


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BYD's Entry is Primary Concern for Washington DC (Case Study)

The likely reason for the rapid escalation from DC is the recent headlines of BYD's interest to rapidly expand in Mexico. BYD is the world's largest EV manufacturer with significant shares held by the Chinese Communist Party which exercises direct control over it. BYD is not a private company as we know them in the West, it is a state-controlled company masquerading as a private company. It is important to remember that before pressures applied by Trump, and continued under Biden, China had little to no interest in investing and partnering with Mexico. Last week we wrote:

"The primary reason BYD is seeking to manufacture in Mexico is to take advantage of tax-free importation of finished goods to America through the USMCA framework. EV adoption in Mexico is relatively low and nowhere close to sufficient to justify the flurry of investment announcements being made."

Further, we wrote that by colluding with BYD Mexico is losing leverage in the upcoming USMCA negotiations slated to occur in 2026. These discussions will determine whether the generous benefits Mexico receives under the USMCA will continue or be drastically reduced or altered. One thing is certain, the status quo is untenable:

"Mexico stands to lose some of the generous benefits extended to it through the USMCA's initial framework. The USMCA mandates a renegotiation of terms every six years to ensure compliance with the agreement's spirit. Since its inception in 2020, the next round of negotiations is slated for 2026. Among the key topics for discussion is the practice of Chinese companies using Mexican operations to circumvent tariffs on goods destined for the American market. Failure to reach consensus during the 2026 review triggers a 'poison-pill' provision, leading to automatic termination of the USMCA a decade later."

Statement from the White House on National Security Risk to U.S. Auto Industry

Link to the statement.

Statement from President Biden on Addressing National Security Risks to the U.S. Auto Industry

"American automakers and auto workers are the best in the world. The iconic Big Three and American auto workers are leading the world in quality and innovation. A dynamic auto industry is vital to the U.S. economy. 

China is determined to dominate the future of the auto market, including by using unfair practices.  China’s policies could flood our market with its vehicles, posing risks to our national security. I’m not going to let that happen on my watch. 

Most cars these days are “connected” – they are like smart phones on wheels. These cars are connected to our phones, to navigation systems, to critical infrastructure, and to the companies that made them. Connected vehicles from China could collect sensitive data about our citizens and our infrastructure and send this data back to the People’s Republic of China. These vehicles could be remotely accessed or disabled. 

China imposes restrictions on American autos and other foreign autos operating in China. Why should connected vehicles from China be allowed to operate in our country without safeguards? 

So today, I am announcing unprecedented actions to ensure that cars on U.S. roads from countries of concern like China do not undermine our national security. I have directed my Secretary of Commerce to conduct an investigation into connected vehicles with technology from countries of concern and to take action to respond to the risks.  

As President I vowed to do right by auto workers and middle-class families that depend on the auto industry for jobs. With this and other actions, we’re going to make sure the future of the auto industry will be made here in America with American workers."




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