Despite achieving a historic US$78.6 billion trade surplus with the US in the first four months of 2024, Mexico continues to grapple with a US$6.5 billion deficit with the world, largely due to a surge in Chinese car imports.

Mexico is navigating complex trade dynamics amid rising tensions over Chinese automotive imports, which have strained its commercial relations, particularly with the United States. According to data from Mexico's National Institute of Statistics and Geography (INEGI), the influx of Chinese automobiles has exacerbated the country's trade deficit by US$37.4 billion, marking a 19.4% increase from the same period last year, setting a new record.

"The significant increase in imports of finished cars from China has overshadowed gains made in other sectors like automotive parts, common metals, plastics, rubber, and textiles," stated UBS analysts in a recent report.

This surge has not gone unnoticed in the United States, where concerns over potential circumvention of US tariffs through Mexico have been raised. However, UBS analysts clarified that while Chinese automakers are present in Mexico, there is no evidence of vehicle exports from Mexico to the United States being used to evade tariffs.

The Mexican government's recent decision to suspend incentives previously offered to Chinese electric vehicle manufacturers underscores the pressure it faces from the United States. These incentives included benefits such as low-cost public land and tax breaks aimed at fostering investments in electric vehicle production. However, following diplomatic discussions earlier this year between Mexican officials and executives from BYD, one of the world's leading electric vehicle manufacturers, it was made clear that future incentives would not be extended.

In response to US concerns, Katherine Tai, the US Trade Representative, emphasized the need to safeguard against subsidized Chinese competition in the electric vehicle market. This stance reflects broader anxieties within the US automotive industry and political circles, particularly amid proposed legislative measures to increase tariffs on Chinese imports.

Chinese automakers such as BYD seek to establish factories in Mexico primarily to serve the domestic market rather than using Mexico as a gateway to the US market. Consequently, states like Durango, Jalisco, Estado de México, and Nuevo Leon are competing to attract Chinese car companies by offering them special benefits.