Mexico’s federal government, under pressure from the US, is keeping Chinese automakers at arm’s length by refusing to offer such incentives as low cost public land or tax cuts for investment in EV production, three Mexican officials familiar with the matter were reported to have said.

The last meeting between top Mexican officials and a Chinese automaker was in January, the Reuters sources said – with executives of BYD.

At the meeting, Mexican officials made clear they would not give incentives like those awarded to automakers in the past and officials would be putting on pause any future meetings with Chinese automakers, the anonymous Reuters sources said.

A White House spokesperson told Reuters president Joe Biden would not let Chinese automakers flood the market with vehicles which pose a threat to national security.

Reuters said it was not able to ascertain which Chinese automakers had requested meetings since. Mexican government officials typically did not disclose subsidies given to the companies for plants, the news agency noted.

According to the report, about 20 Chinese automakers now sell cars in Mexico but none yet have a local factory. Chinese vehicles now account for about a third of the total brand offerings in Mexico.

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The Reuters sources attributed the government stance to US government pressure, specifically from the Office of the United States Trade Representative (USTR), to keep Chinese automakers out of the free trade zone established under the North American Free Trade Agreement.

A USTR official’s response to Reuters did not address the reported pressure but did say the United States-Mexico-Canada Agreement (USMCA) was not meant to “provide a back door to China and others who may be seeking to access our market without paying … tariffs”.

The official told Reuters the USTR was focused on that issue as it relates to autos, steel and aluminium.

The news agency said the US intervention reflected increasingly acute fears from its automotive industry, unions and US political circles that Chinese automakers such as BYD, SAIC, Geely, Chery and JAC aimed to use Mexico as a back door to sell cheap electric cars in the United States without paying steep US tariffs, now at 27.5%.

US trade representative Katherine Tai reportedly said the US must take decisive action to protect EVs from subsidised Chinese competition.

Mexico, Latin America’s second largest economy, is caught in the crossfire between the world’s two biggest economies and car markets, Reuters said.

Last month, Republican US senator Marco Rubio proposed legislation seeking much higher tariffs on Chinese vehicle imports. Two days later, three senate Democrats from auto manufacturing states urged the Biden administration to hike import tariffs on Chinese EVs.

Chinese automakers can get around US tariffs by setting up shop in Mexico, as long as they meet rules for how much of a vehicle must be produced locally, Reuters said.

“A sizeable proportion of the goods arriving in Mexico by ocean will likely be trucked into the US which gives rise to the suspicion that the increase in trade we are witnessing is due to importers trying to circumvent US tariffs,” Peter Sand of research firm Xeneta told Reuters.

In order to avoid US tariffs, goods must have a certain percentage of regional assembly and components, varying depending on the product and the sector. At least 75% of core vehicle parts – like engine or transmission – must originatein the North American region.

Despite the headwinds, Chinese automakers like BYD are still looking to put down roots in Mexico, the report said.

In late February, BYD insisted any factory in Mexico would serve the local market and not ship to the US but many industry officials were sceptical, the report said.

One source told Reuters BYD was now chasing incentives from state governments instead even though they were substantially less beneficial than the federal ones.

Industrial states like Durango, Jalisco, Mexico State and Nuevo Leon were looking for Chinese automakers to open assembly plants, offering a wide range of incentives. Nuevo Leon last December approved US$153m in incentives for a Tesla plant.

Federal incentives have in the past been generous, including free land, water and energy facilities and help in hiring workers, Francisco Bautista, a partner at EY in Mexico, told Reuters.

Bautista added these kinds of incentives had been reduced under the current government but some had still been given to major investors like Volkswagen’s Audi.

In September, officials from the Mexican economy and foreign relations ministries traveled to Washington to meet with US commerce department, department of state and USTR officials as part of US-Mexico high-level talks.

In the meeting, the subject of Chinese automakers establishing EV production in Mexico was raised for the first time although it was not on the agenda, the Reuters sources said.

The officials met again in January 2024 in Toronto where another request was made by US officials to hinder Chinese automakers.

Mexican officials told Reuters that, although Chinese investment could help the local economy, the government was concerned about angering Washington with USMCA up for revision in 2026.

Under the “sunset clause,” in July 2026 the three countries would decide whether to extend the USMCA for another 16 years.

Mexican officials fear US officials could seek to overhaul the trade pact to Mexico’s detriment, one Reuters source said.