By Mary Anastasia O’Grady
Is Mexico responding to U.S. pressure—or maybe to threats from Donald Trump—against Chinese electric-vehicle manufacturing south of the border? That’s the takeaway from a Reuters report Friday citing unnamed Mexican officials who say that Mexico is halting its practice of giving incentives to vehicle manufacturers and “putting on pause any future meetings with Chinese automakers.”
If Mexico pulls back on subsidies designed to woo Chinese investment in EVs, it may provide a little goodwill on the country’s balance sheet with the U.S. But it’s unlikely to satisfy powerful American steel, aluminum and auto interests lobbying for greater barriers to free trade in this election year. While Mexico has the attention of the U.S. press, the real spat is about the World Trade Organization and the protectionist catchall “national security.”
American politicians on both sides of the aisle seem eager to conflate Chinese EV production in Mexico with the U.S.-Mexico-Canada Agreement, or USMCA. The idea is to denounce anything made in Mexico, as if the U.S.’s southern neighbor and one of its largest trading partners is an enemy.
This is a sop to Big Labor and to the grievance brigades in swing states who pine for the protectionism of the 1980s. It’s also dishonest and dangerous and threatens to drag the U.S. economy back into the destructive 1930s era of the Smoot-Hawley tariff.
In February Nikkei reported that Chinese EV manufacturer BYD was scoping out options for a plant in Mexico. At a March rally in Ohio Mr. Trump took aim at the news.
“Mexico has taken, over a period of 30 years, 34% of the automobile manufacturing in our country,” he said. “Think of it. It went to Mexico. China now is building a couple of massive plants where they’re going to build the cars in Mexico and . . . they think that they’re going to sell those cars into the United States with no tax at the border.”
It’s unlikely that Mr. Trump believes this, because it was his administration that negotiated the rules of origin under the USMCA, which replaced the North American Free Trade Agreement. The USMCA requires that 40% of the content of duty-free autos be made with a $16-an-hour minimum wage, cutting out Mexico’s lower-priced labor. The USMCA also requires 70% of the steel and aluminum in duty-free cars be made in North America. USMCA rules of origin for autos require 75% North American content.
Mr. Trump’s suggestion that Chinese-made steel, aluminum and components will be slapped together in Mexico and qualify as duty-free under USMCA unless he intervenes is preposterous. But he isn’t alone in trying to promote the false narrative.
Democrats have endorsed his trade tirade—even if they aren’t giving him credit. In an interview in March, Rep. Debbie Dingell (D., Mich.) said, “I really, really, really, really, really am going to be intense about ensuring that automobiles made by China aren’t going to get any benefit from trade agreements that we’ve got. So, you know, producing in Mexico and coming in here.” If Ms. Dingell thinks cars using Chinese-made steel and components can “benefit” from the USMCA, she is guilty of a staggering level of ignorance.
BYD’s entry into Mexico isn’t about the USMCA. BYD says it plans to make cars for the Mexican market, where it could presumably be competitive. A BYD car is significantly cheaper than a Tesla. American companies already use production in China to compete in the Mexican market. General Motors, a leader in auto sales in Mexico, relies on China as a key supplier. If the U.S. wants to accuse China of third-country dumping, it should go to the WTO.
Slumping China is hungry for export markets where it can be competitive. But in the near term that probably doesn’t include the U.S., which is already violating WTO rules with a 27.5% tariff on autos from China—25 points above the “most-favored nation” rate of 2.5%.
Mr. Trump says he’s ready to make it 100% on China cars made in Mexico. The Commerce Department has launched an investigation into what it calls the “national security risks of connected vehicles, specifically PRC-manufactured technology in the vehicles.” In following up on the news from Mexico last week, Reuters reported that “a White House spokesperson said [President Biden] will not let Chinese automakers flood the market with vehicles that pose a threat to national security.”
I don’t know about you, but I can think of a lot of ways that China can spy on the U.S. and a car, which is today a computer on wheels, is hardly required. This is raw protectionism. It’s bad for the innovation and competition that is good for Americans and none of it has anything to do with the USMCA.
Write to O’Grady@wsj.com.
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Mary Anastasia O’Grady is an Opinion Columnist, writes «The Americas,» a weekly column on politics, economics and business in Latin America and Canada that appears every Monday in the Journal. Ms. O’Grady joined the paper in August 1995 and became a senior editorial page writer in December 1999. She was appointed an editorial board member in November 2005. She is also a member of the board of directors of the Indianapolis-based Liberty Fund. EnergiesNet.com does not necessarily share these views.
Editor’s Note: This article was originally published by The Wall Street Journal (WSJ), on April 21, 2024. All comments posted and published on EnergiesNet or Petroleumworld, do not reflect either for or against the opinion expressed in the comment as an endorsement of EnergiesNet or Petroleumworld.
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EnergiesNet.com 04 24 2024
