Analysis-Biden’s new China tariff wall faces leakage via Mexico, Vietnam
WASHINGTON — The Biden administration’s new tariffs on Chinese electric vehicles and other strategic sectors aim to protect the future of U.S. manufacturing, but they will likely accelerate a shift of Chinese production to Mexico, Vietnam and elsewhere to avoid them.
U.S. officials and trade experts say that without strong efforts to cut off transshipped or lightly processed Chinese goods from Mexico and other countries, China’s underpriced excess production will still find its way into U.S. markets.
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“The new tariffs might keep out imports from China but it is likely that much of those imports could be rerouted through countries not subject to the tariffs,” said Eswar Prasad, trade policy professor at Cornell University and a former China director at the International Monetary Fund.
Mexico and Vietnam, in particular, have benefited from escalating U.S.-China trade tensions due to their lower costs and proximity, Prasad said, adding that they both need to avoid Washington’s “ire” while reaping new manufacturing investments.
Mexico, for one, has overtaken China as the top source of imports into the U.S., with more than $115 billion of goods originating from there in the first three months of 2024 versus less than $100 billion from China.
With that surge, concerns have grown about Mexico becoming a transshipment hub for Chinese goods to skirt U.S. tariffs, due to increasing U.S. imports of steel products from Mexico and Chinese EV maker BYD scouting out locations for a Mexican factory that could potentially supply the U.S. market. Reuters reported last month that U.S. officials have pressured Mexico to refuse investment incentives to Chinese automakers.
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U.S. Trade Representative Katherine Tai told reporters she was concerned about Mexico’s trade relationship with China and to “stay tuned” on future separate efforts to head off tariff evasion problems.
“The fact pattern that’s developing is one that is of serious concern to us, and that at USTR, we are looking at all of our tools to see how we can address the problem,” Tai said.
Mexico benefits from largely zero U.S. tariffs under the U.S.-Mexico-Canada Agreement on trade, while the U.S. Commerce Department is considering granting Vietnam “market economy” status, which would reduce anti-dumping duties on Vietnamese imports.
Under the pact put into force in July 2020, the three countries could seek to renegotiate or terminate USMCA after six years.
