From 2007 to 2022, China was the largest source of imports for the United States. However, in 2023, Mexico took over as the top import source for the U.S. This shift wasn’t just because the U.S. imported less from China; it was also because imports from Mexico increased. In 2023, U.S. imports from China dropped by 20% to $427.2 billion, while imports from Mexico went up by 4.5% to $475.6 billion. This change highlights the complex trade relationships between China, Mexico, and the U.S.
Interestingly, a lot of Chinese products are now being rerouted through Mexico to avoid U.S. tariffs. This has led to a rise in indirect imports from China via Mexico. On top of that, China’s investment in Mexico has been growing due to its proximity to the U.S. and the benefits from the USMCA trade agreement. Chinese investment in Mexico jumped from $500 million between 2000 and 2004 to an estimated $2.5 billion in 2022.
A major concern here is the import of steel and aluminum through Mexico, which has raised transparency issues. To address this, the Mexican government imposed an 80% tariff on cold-rolled steel sheets from Vietnam, believed to be of Chinese origin. There’s also worry about electric vehicles made in Mexico using Chinese parts and exploiting USMCA rules to get tariff advantages. In February, China’s leading EV manufacturer BYD announced plans to build a factory in Mexico, which added to these concerns.
During this period, China’s exports to Mexico grew significantly from around $40 billion to $81.9 billion between 2021 and 2023, making Mexico China’s 11th largest export destination. This growth was mainly driven by exports of automobiles and auto parts. Similarly, U.S. imports from Mexico surged, particularly in steel, aluminum, cars, and automotive parts, as goods originally produced in China were rerouted through Mexico. In 2023, U.S. imports from Mexico included $10 billion in steel and $2.3 billion in aluminum, both showing substantial increases from previous years. Imports of electric vehicles and automotive parts from Mexico also grew significantly, with EV imports reaching $370 million in 2023.
To address these trends, the U.S. government has been in continuous dialogue with Mexico, particularly regarding the surge in imports of steel and aluminum. U.S. Trade Representative Katherine Tai and Mexican officials have discussed measures to strengthen Mexico’s export monitoring systems. Meanwhile, the U.S. Congress has been pushing for legislative measures to reimpose tariffs on Mexican steel and other imports if necessary.
The rise in imports of electric vehicles from Mexico, especially those with Chinese parts, has also prompted calls for action to prevent circumvention of U.S. tariffs. U.S. lawmakers have urged the USTR to investigate the impact of Chinese automotive investments on the domestic industry and labor force. Bills like the “Protecting American Autoworkers from China Act” aim to impose higher tariffs on vehicles produced by Chinese companies, regardless of where they are manufactured.
These legislative efforts have garnered support from the American manufacturing industry and various trade associations. The Alliance for American Manufacturing, for instance, highlighted the threat to the U.S. auto industry posed by Chinese companies leveraging the USMCA to export to the U.S. Moreover, organizations like the Coalition for a Prosperous America criticized the loopholes allowing Chinese goods to enter the U.S. market via Mexico.
Recognizing the national security implications, the Biden administration has ordered investigations into the potential threats posed by importing Chinese electric vehicles. This move aims to determine whether these imports could compromise sensitive data and infrastructure, with potential regulatory actions, including the imposition of tariffs.
For Korean companies, these evolving trade dynamics have significant implications. They must monitor U.S. regulatory actions closely, especially those targeting steel, aluminum, and automotive imports from Mexico. Any U.S. measures aimed at curbing Chinese imports via Mexico could impact Korean businesses operating in these sectors. Although these measures are primarily aimed at China, the burden of proving non-involvement with Chinese products could pose challenges for Korean companies.
In summary, the changing trade dynamics among the U.S., China, and Mexico are reshaping import patterns and prompting strategic responses from all involved. Korean businesses need to stay informed and prepared for potential regulatory changes that could affect their operations in North America.
