China increases shipments of intermediate products to Mexico

Trade data shows an increase in exports of intermediate goods from China to Mexico, according to an analysis released by the U.S. International Trade Commission (USITC).

These shipments will likely support Chinese assembly in Mexico, the analysis added, without specifying global data, but rather sector trends.

For example, it states that Mexican imports of auto parts from China increased from $2 billion in 2013 to nearly $5.3 billion in 2023.

Mexico's main auto parts imports from China in 2023 included body parts and accessories ($711.3 million), brake components ($613.4 million), and rims ($562.7 million). These three subheadings accounted for more than 36% of Mexico's auto parts imports from China in 2023, according to this analysis by the U.S. International Trade Commission.

While China was the second-largest source of automotive parts imports after the United States throughout the entire 10-year period, the gap between it and the rest of Mexico's auto parts sources increased significantly during the period.

On the other hand, at least three of the Chinese investments recorded in Mexico in 2023, totaling $650 million, were for plants that would smelt aluminum parts (and produce parts in other ways).

These investments in Mexico by Chinese suppliers of aluminum automotive parts may have been intended to act as an outlet for excess capacity of Chinese aluminum, which is relatively expensive to export to the United States due to a 25% tariff on imports from China (and Section 232 tariffs).

Due to a July 2024 agreement between the United States and Mexico, aluminum melted in China and stamped or cast in Mexico would still incur Section 232 tariffs.

By melting Chinese aluminum into automotive parts in Mexico, producers may not comply with the automotive rules of origin under the United States-Mexico-Canada Agreement (USMCA, 60 to 75 percent regional value content depending on the part), but they would likely face significantly lower U.S. tariffs than if the parts were melted in China.

This working paper for the USITC concluded that Chinese investment in Mexico's automotive and electronics industries could allow Chinese companies to legally assemble products with significant amounts of Chinese content in Mexico and export them to the United States by paying Mexico-specific tariffs rather than China-specific tariffs.

Tariff rates on U.S. automotive and electronics imports from Mexico could be lower than those on U.S. imports from China, both because of the USMCA and any China-specific tariffs the U.S. has in place.

According to analysis by the U.S. International Trade Commission, it appears that at least some Chinese manufacturers in both sectors, particularly the automotive sector, are already taking advantage of this opportunity, and more are likely to do so.

Some of this assembly may be destined for the Mexican domestic market, but many manufacturers have long used Mexico as a platform for exporting to the rest of North America.

Mexico's main imports of auto parts from China in 2023 included body parts and accessories (US$711.3 million), brake parts (US$613.4 million), and rims (US$562.7 million).