By Omar S. Nashashibi, founder, Inside Beltway

In 2023, Mexico surpassed China as the largest importer of goods into the US, increasing shipments by nearly 5%. Also in 2023, China’s Foreign Direct Investment (FDI) in new facility construction and expansion in Mexico reached $5.6 billion, up from $267 million in 2018. In addition, during the first eight months of 2024, the shipment of goods from China to Mexico jumped 22% following a 33% increase over the same period last year.

The numbers detail an important narrative. During an October 2024 trip to Brazil, US Trade Representative (USTR) Katherine Tai said that the US has observed “potentially concerning developments in terms of Chinese company acquisitions in Mexico to build factories.” In private meetings and public hearings, the AMBA has raised similar concerns with the Office of the USTR, including AMBA Managing Director Kym Conis testifying before the federal agency in May 2024.

The increased correlation between imports from China to Mexico and the surge in shipments across the border also has caught the attention of lawmakers. Members of Congress in recent months introduced legislation supported by AMBA targeting investments by non-market economies, such as China, into other countries with the intent to evade the US tariffs. Targeting the investments before a product is manufactured will help the US industry play offense, rather than waiting to respond until after injury to the industry occurs.

The US Congress is expected to move legislation to address trade enforcement, exports and investments with China in its lame duck session following the November election. Sources in Washington, D.C. indicate that lawmakers may include provisions in the annual National Defense Authorization Act language to begin addressing some of these concerns.

Transshipment and transnational subsidies are playing an increased role in the Chinese Government’s strategy to evade US tariffs. Many of the containers entering Mexico hold products manufactured in China, often for transshipment into the US but frequently for assembly – allowing a more finished good to bear the ‘made in Mexico’ label and travel across the border tariff-free. A product that is assembled in Mexico with parts from China typically is considered substantially transformed and, therefore, made in Mexico.

AMBA members and other manufacturers report that, in addition to products being shipped from Mexico, the companies backed by Chinese investors often use tooling, and even workers, from China in their Mexico facilities. This effectively places competition with the People’s Republic of China in the backyard of American industry.

US manufacturers can no longer rely on lead time as a competitive advantage when a Chinese competitor can ship across the southern border and send the profits back to China. In addition, industry in Mexico increasingly is raising concern over shipments from China negatively impacting its domestic industry. Alarm bells are ringing across the Mexican automotive market and downstream suppliers as Chinese-manufactured models accounted for 20% of passenger vehicles sold in Mexico during 2023.

The US Government, at the urging of industry groups such as AMBA, is placing pressure on Mexican officials to tighten enforcement on goods entering from China. Much of this will come to a head regardless of the next occupant of the Oval Office. In July 2026, the US, Mexico and Canada will come together for the mandatory six-year review of the updated NAFTA, known as the USMCA.

Following its entry into force in 2020, the USMCA mandates a six-year review, during which the parties may extend the agreement for an additional 16 years, announce an intent to depart the pact or continue to renew the USMCA annually until the sides reach an agreement on changes sought by negotiators. A Trump or Harris administration would demand changes by Mexico particularly on foreign ownership and content entering the US through the southern border.

During the campaign, both presidential candidates stated their intention to make changes to the USMCA and address the surge in imports from China through Mexico. A bipartisan group of Senators sent a letter in September 2024 to President Biden calling for administrative action to “address China’s rampant exploitation of Mexico as an intermediary for the transshipment of goods.”

The lawmakers are among an increasing number of policymakers in Washington, D.C. seeking to impose Section 301 tariffs on Chinese goods manufactured in Mexico. Products originating from any of the three USMCA nations are not subject to tariffs or duties under the agreement, requiring Mexico to agree to allow the US to impose the tariffs. Of course, the President simply could ignore their counterparts and take unilateral action and impose tariffs on imports produced in facilities owned by interests based in China.

Members of Congress in recent months introduced legislation supported by AMBA targeting investments by non-market economies, such as China into other countries with the intent to evade the US tariffs.

In September 2024, the US Department of Commerce proposed a rule barring importation of hardware and software from China related to connected vehicles. This is a major action that effectively prevents vehicles and certain components from entering the US. Negotiators likely are to build off those efforts in talks with Mexico and Canada, seeking to create a unified front against imports from companies subsidized by the Chinese Government and related interests.

Many of us lobbying on manufacturing trade policy see transshipment, transnational subsidies and investments into Mexico supported by the Chinese government as the top issues facing manufacturers and policymakers alike. The 2026 USCMA negotiations present a clear time to update the agreement to require Canada and Mexico to take steps and restrict importation of select imports from China. The greater challenge is addressing investment by the People’s Republic of China into Mexican operations and shipping those goods into the US.

The new administration is sworn into office on January 20, 2025, and is not expected to wait until 2026 USMCA negotiations to address this emerging issue. AMBA will work with the new administration to prevent a surge in molds and tooling from Mexico manufactured in facilities connected to the Chinese Communist Party. The association, however, needs its members’ assistance now to provide stories and data about products from China transshipped through Mexico and subsidized goods entering from the southern border. Providing the incoming administration with real-world information will better prepare it to defend the industry.

Omar S. Nashashibi is the founder of Inside Beltway, a nonpartisan lobbying and strategic consulting firm in Washington, D.C., retained by the AMBA. He works with policymakers on trade, taxes, environmental and workplace regulations, supply chains, job training and identifying grants and funding to support manufacturing.