Commentary:
For the past several years as the U.S.-China trade war has continued, Mexico has been the poster child for nearshoring, in which foreign companies whose primary market is the U.S. set up operations there. Asian companies caught in the middle of this trade war have seen tariffs slapped on the goods that they are exporting to the U.S. Many Taiwanese companies start their operations in Taiwan, but then scale up production in China. Even though they are Taiwanese, not Chinese companies, their Chinese production is still subject to U.S. import tariffs.
I have dealt with several Taiwanese companies that have experienced tariffs up to 25 percent on their Chinese-made products that they export to the U.S. In many cases, this has made their products non-competitive compared to products manufactured in North America or products manufactured in other countries not in a trade war with the U.S. The solution for many Taiwanese companies is to establish production in North America in order to access tariff protection under the U.S.-Mexico-Canada Agreement (USMCA).
Juarez, Chihuahua has benefited from the establishment of several new production campuses of Taiwanese manufacturers due to nearshoring, and the Juarez Maquiladora Association recently announced that another 10 Taiwanese projects are on their way. The strong supplier bases in Juarez, El Paso and Santa Teresa are a major factor in drawing these companies to the Borderplex region.
Last month, BYD, the world's largest electric vehicle (EV) manufacturer, announced plans to build an EV production facility in Mexico, which would create 10,000 jobs. This would make BYD one of the largest automotive manufacturers in Mexico. The location of the plant and the details of what models will be manufactured there have still not been announced.
For those who don’t know, BYD manufactures quality EVs that are very affordable. One of its models, the Seagull, sells for approximately $12,000, which would put it in the reach of many ecologically minded Americans who want an EV, but can’t afford one. So why are Americans not able to go to a BYD dealer in the U.S. and purchase an automobile?
The answer is very simple. BYD is a Chinese company on whose products the U.S. has been slapping 27.5 percent import tariffs. The U.S. government has accused China of providing government subsidies to its manufacturers that export their products to global markets. This makes Chinese products economical and unfairly competitive. There is also the legitimate fear that cheap Chinese EVs will seriously damage their U.S. competitors.
Recently, the Biden Administration upped the stakes in the trade war with China. It was announced that the tariffs on solar cell imports will rise to 50 percent. The tariffs on computer chips will rise to 50 percent. The tariffs on Chinese EVs will rise to a whopping 102 percent this year, thus discouraging their importation into the U.S.
The recent BYD announcement of its new automotive factory in Mexico is huge, not just for its scope, but because of the issues it raises. By setting up production in Mexico and abiding by the USMCA rules of a specific amount of North American content and labor, BYD’s products will qualify for the little or no tariffs provided by the agreement. This means that technically BYD can manufacture its products in Mexico and avoid the 102 percent tariffs when exporting its Mexican-manufactured products to the U.S. This will totally help it circumnavigate the U.S.-China trade war and have access to the huge U.S. EV market.
Before BYD’s Mexico announcement, U.S. Trade Representative Katherine Tai had been in discussions with U.S. government officials and automotive representatives about the possibility of the scenario of BYD producing in Mexico. When asked about this possibility, her answer was to “Stay tuned.” Now that the announcement has been made, the U.S. is in a quandary.
U.S. government officials have applauded the return or establishment of Chinese and other Asian production to North America and the billions in investment and thousands of jobs it creates. If Mexico gets reshoring projects, American suppliers to these projects stand to benefit. On the other hand, it does not want government-subsidized EVs from a Chinese company manufacturing in Mexico destroying U.S. markets. Furthermore, the U.S. is a partner in the USMCA, which has clear rules on qualifying for zero tariffs, based on North American content and labor. For Mexico and its incoming new president Claudia Sheinbaum, it also complicates matters. The BYD project is precisely the kind of large-scale investment that it wants and courts. However, Sheinbaum will want to build good relations with the U.S. out of the gate, and BYD complicates matters.
BYD’s Mexico announcement goes beyond a trade issue. It has political implications between the U.S., Mexico, and the USMC. The U.S. government will need to proceed carefully to keep Chinese companies on the tariff hot seat, while adhering to its UMCA obligations. Interestingly, BYD stands for “build your dreams.” By establishing production in Mexico and avoiding U.S. import tariffs, it will be doing just that.
Jerry Pacheco is the President of the Border Industrial Association. Jerry Pacheco's opinions are his own and do not necessarily reflect the views of KRWG Public Media or NMSU.