The prospect of low-priced Chinese EVs coming to the US from Mexico poses a threat to automakers

WASHINGTON – It’s a scenario that terrifies the American automobile industry.

Chinese automakers have set up shop in Mexico to exploit North American trade rules. Once implemented, they ship ultra-low priced electric vehicles to the United States.

As Chinese electric vehicles go on sale across the country, domestically produced electric vehicles in the United States — which cost an average of $55,000, roughly double the price of their Chinese counterparts — are struggling to compete. Factories close. Workers lose jobs across America’s industrial heartland.

Ultimately, it could all become a painful repeat of how government-subsidized Chinese competition has devastated American industries, from steel to solar equipment, over the past quarter century. This time, it would be electric vehicles, which North American car manufacturers see as the core of their business in the coming decades.

“Time and time again, we have seen the Chinese government dump heavily subsidized products into markets for the purpose of undermining domestic production,” wrote Senator Sherrod Brown, an Ohio Democrat, in an April letter to President Joe Biden that called for a definitive ruling. . ban on Chinese electric vehicles in US “We cannot allow the same to happen when it comes to electric vehicles.”

Low-priced Chinese EVs represent a potential “extinction event” for the American auto industry, the Alliance for American Manufacturing has warned.

The trade deal that Beijing could potentially explore – the US-Mexico-Canada Agreement – ​​was negotiated by the Trump administration and enacted in 2020. Its rules could allow Chinese automobiles assembled in Mexico to enter the United States, duty-free or at a nominal price. Tariff rate of 2.5%. Either way, China could sell its electric vehicles well below typical US prices.

To neutralize the threat, the US has options. Customs officials could decide that Chinese EVs do not qualify for the tax relief or duty-free benefits of being assembled in Mexico. U.S. policymakers could also pressure Mexico to keep Chinese vehicles out of that country. Or they could ban Chinese electric vehicles from entering the US, claiming they would threaten America’s national security.

In turn, Donald Trump told Time magazine in April: “I’m going to tariff 100%. Because I’m not going to let them steal the rest of our business.

Whatever steps the US government may take will likely face legal challenges from companies wanting to import Chinese electric vehicles.

Beijing’s threat is emerging as U.S. automakers face slowing sales of electric vehicles even as they invest billions to produce them in a high-priced bet that Americans will embrace automobiles. battery-powered systems in the coming decades. Comparatively high prices, despite federal tax incentives for buyers, have weakened EV sales in the United States. So has public anxiety about a shortage of charging stations, potentially worsened by increase in cable thefts at charging stations.

Optimists suggest that an influx of ultra-low-priced Chinese electric vehicles could accelerate US electric vehicle purchases, accelerate investment in charging stations and force prices down.

“It would be cheaper to just let Chinese cars in, forget about all the tariffs and subsidies, let the market figure it out,” said Christine McDaniel, a senior fellow at George Mason University’s Mercatus Center who was a trade official in the George W. Bush administration. “Yes, it would be disturbing. But EVs would hit U.S. roads much faster.”

At stake is a hugely consequential question: who will dominate the manufacture and sale of zero-emission electric vehicles?

So far, China has taken a frightening lead. It accounted for nearly 62% of the 10.4 million battery-powered electric vehicles that were produced worldwide last year. The United States, in second place, earned around 1 million – less than 10% of the total, according to the consulting and analysis company GlobalData.

By achieving technological advancements while keeping costs low, Chinese automakers have made remarkable progress. China’s BYD launched a small EV called the Seagull last year which is sold for just US$12,000 in China (US$21,000 for a version sold in some Latin American countries). Considered a marvel of engineering efficiency, its lightweight design allows the Seagull to go further per charge with a smaller battery. BYD said it is considering building a factory in Mexico – but only for the Mexican market.

US policymakers and car companies are far from calm.

“Just look at China – see how big their market share is in EVs,” said John Lawler, Ford Motor’s chief financial officer, at this month’s Deutsche Bank Global Automotive Industry Conference. “These are significant competitive threats that we need to deal with. They have a much faster development process – 24 months.” (In contrast, U.S. vehicles typically undergo development for four to five years, although that time has been reduced to three years or less for EVs.)

Critics note that BYD and other Chinese electric vehicle makers have achieved their cost efficiency thanks to heavy government subsidies. Beijing spent 953 billion Chinese renminbi (more than $130 billion at current exchange rates) on EVs and other green vehicles from 2009 to 2021, according to researchers at the Center for Strategic and International Studies.

“It’s not competition,” Biden said last month. “It’s cheating.”

Last month, Biden drastically increased tariff on Chinese EVs, from the 27.5% established under the Trump administration to 102.5%. The goal is to eliminate even the cheap BYD Seagull from the US market. (Europeans are also worried: The European Union says it plans to impose tariffs of up to 38.1% on Chinese EVs for four months starting in July.)

The US-Mexico-Canada Agreement, however, potentially allows vehicles assembled in Mexico – even if they are made by European or Asian automakers – to enter the US with a much lower tariff or no tariff at all. If cars manufactured in Mexico met USMCA requirements, they could enter the United States tax-free. At least 75% of a car and its parts would have to come from North America. And at least 40% of this value must come from places where workers earn at least $16 per hour.

Still, for a Chinese electric vehicle maker like BYD, qualifying for duty-free treatment under the USMCA can be difficult even if it tries to source parts in North America.

“Even North American automakers struggle to meet these limits,” said Daniel Ujczo, senior counsel at law firm Thompson Hine in Columbus, Ohio.

But there’s an easier way for Chinese electric vehicle makers to use Mexico to try to dodge Biden’s 102.5% import tax: They would have to pay just 2.5% — the tax levied on most cars imported into the United States – if they could show that assembling their EVs in Mexico involved a “substantial transformation” that essentially transformed them from Chinese cars to Mexican cars.

US authorities could reject the notion that a substantial transformation occurred during the assembly process. But the U.S. would have difficulty prevailing if that decision were challenged in the U.S. Court of International Trade, “given the substantial changes that typically occur in automobile assembly plants,” said David Gantz, a trade lawyer and fellow at Rice University’s Baker Institute. for Public Policy, he wrote.

Still, Gantz said in an email: “My conclusion is that using one or more of the commercial and national security mechanisms available to the US government, the US will be successful in excluding Mexican/Chinese EVs.”

The “most effective and quickest” way to stop the entry of Chinese EVs, Gantz argues, would be to block them for national security reasons. After all, today’s EVs are loaded with cameras, sensors and other technological devices that could collect images of the cars’ surroundings and drivers’ sensitive personal information. And China is not just an economic competitor. It is a geopolitical adversary – and potentially a military one as well.

“US fears about the possible use of connected vehicles to spy on military installations or power plants are not unreasonable,” Gantz wrote.

Biden even warned that EVs “could be remotely accessed or disabled.” In February, he ordered his Commerce Department to Investigate Technology in Chinese “Smart Cars” ‘ a potential prelude to blocking Chinese EVs on national security grounds.

McDaniel of the Mercatus Center argues that the United States has significant leeway to do what it wants — especially given Mexico’s dependence on the U.S., its main export market.

“Could you imagine a scenario where the U.S. says to Mexico, ‘Don’t even think about allowing this (Chinese EV) investment into Mexico,'” she said. “‘We won’t allow these cars into the U.S.”

“What is stopping the White House,” McDaniel said, “whether now or in the next administration, from just releasing a new document, an executive order, saying, ‘We will no longer recognize products from our USMCA partners if they are more than percent content from foreign entities of concern, including China'”?

The U.S. has additional leverage because the USMCA will be reviewed in 2026. If it tries to amend the agreement — perhaps by adding a provision to ban or limit Chinese EVs from Mexico — but fails to prevail after negotiations with Canada and Mexico, it could leave the USMCA expires.

McDaniel noted that the World Trade Organization, which was created to enforce global trade rules, has become largely ineffective. The WTO’s Appellate Body — its Supreme Court — effectively ceased functioning in December 2019 because the US blocked the appointment of new judges to the panel. Business cases now go unresolved indefinitely.

“We are no longer in the WTO world,” McDaniel said. “It’s ‘can do right’ — that’s the kind of world we live in.”

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AP Auto Writer Tom Krisher in Detroit contributed to this report.