Closing Back Doors to Chinese Investment in Mexico May Cost U.S.

With campaign rhetoric heating up on both sides of the aisle, Republicans and Democrats alike perceive Chinese imports as a threat.

Although many lobbyists and politicians view Chinese foreign investment in Mexico as an unfair strategy to dump products on U.S. consumers, an important tenet of the US-Mexico-Canada Agreement and international trade law is national treatment of foreign investment. In other words, a company that establishes itself in Mexico has all the rights of a Mexican company.

If Congress or the executive branch were to decide to indiscriminately block imports from Mexico because they include products made with foreign capital, it would be grounds for a formal complaint under the USMCA and likely compensatory tariffs.

“Such a move could have important costs for both the U.S. and Mexican economies,” says Ken Smith Ramos, a private consultant who was the USMCA’s chief trade negotiator for Mexico. About protectionism in general, he adds: “We’ve seen that show in the U.S. in the ’30s and in Mexico in the ’70s, and it doesn’t end well. The irony is that at a time when immigration is at the political forefront in the United States, foreign investment is the one thing that creates the jobs that can keep people in their communities.”

Nevertheless, as the political heat continues to rise, Smith doesn’t discount that the winner of this year’s election could use the threat of the 2026 USMCA revision and the North American Leaders Summit to pressure other non-tariff barriers such as enforcing traceability of origin to rule out human rights and labor abuses, increased dumping cases, special rules for strategic industries or more onerous customs procedures.

Chinese auto companies that have exported cars to Mexico over the past two years appear to be focusing mostly on the local market to soak up excess domestic production. However, during a visit for the launch of the BYD Dolphin Mini (Seagull in China), BYD Americas CEO Stella Li told Reuters that the company continues to view options for a plant in Mexico with a production capacity of 150,000 vehicles annually and hopes to have a decision by year-end. She also doubled down on earlier statements that BYD wasn’t interested in the U.S. market and that the automaker was not considering border states for the plant location.

Mexico is one of the world’s most prolific signers of free-trade agreements (FTAs), having 13 such pacts with 50 countries – including the USMCA and FTAs with the European Union, European Free Trade Area, Japan, Israel, 10 countries in Latin America and the 11-country Comprehensive and Progressive Agreement for Trans-Pacific Partnership.