Source: Blog – Alliance for American Manufacturing

Getty Images

Beijing has concentrated its attention on offshore manufacturing as a means of possible tariff circumvention amid increasing global scrutiny of China’s massive auto overcapacity.

The U.S. Commerce Department’s proposed ban on the import of connected vehicles that integrate certain Chinese- or Russian-made technologies could “significantly affect Mexico’s automotive industry” and disrupt bilateral trade, Mexico argues in comments submitted to Commerce this month. The objection hints at Mexico’s intention to capitalize on Chinese supply chains for the vehicles it exports to the U.S. under the United States-Mexico-Canada Agreement.

As you’ll recall, the White House announced plans to impose the ban back in September, amid concerns that connected vehicle technology from “the PRC and Russia present particularly acute threats,” and we couldn’t agree more.

In comments the Alliance for American Manufacturing (AAM) submitted to Commerce on Oct. 28, we applaud the Biden administration’s efforts to address the danger:

“Time is of the essence, as there are concerning reports that large amounts of data collected from Chinese vehicles are headed to Beijing. For example, launched in July 2023 to examine the data collection capabilities of a Nio ES8, Project Lion found that ‘[s]ome 90% of the communications — which includes a range of data from simple voice commands to the car to the vehicle’s physical location — were sent to China…’ The project also uncovered unusual activity in the form of ‘a single, unencrypted file being downloaded constantly by the vehicle from a nio.com internet address.’”

That our southern neighbor is trying to neutralize a ban on technology that poses such a clear national security risk is worth noting, but what really caught our attention was how entwined Chinese components and Mexican auto exports must be for the ban to pose such a risk to the Mexican auto sector, by the nation’s own admission.

“The automotive sector will face disruptions in supply chains from China, as auto parts and components integrated into vehicles—given that assembly is a predominant activity in our country—could impact economic growth within this sector,” Mexico argues in comments submitted to the Commerce Department this week. This admission belies that these autos are truly Mexican exports.

To that same point, Mexico states that the proposed ban “could lead to increased production costs due to the shift in suppliers of auto parts and components within the automotive industry’s pre-planned supply chain,” presumably because Chinese manufacturers play such a sizeable role in Mexico’s vehicle production. This enmeshing of China’s auto manufacturing giants into the Mexican economy is certainly part of Beijing’s mission to circumvent tariffs imposed by the United States, the European Union, and Canada.

We documented China’s efforts to grow its Mexican manufacturing base in our auto report:

“China’s automakers currently face significant barriers to entry into some western markets, including the United States. The European Union in 2023 began an investigation into the raft of subsidies that underpin Chinese auto exports’ competitiveness, while U.S. tariffs have successfully kept these cars, electric or otherwise, off American highways.

“But Chinese automakers are not idle. BYD, which became the world’s largest EV manufacturer in 2023, is building a factory in the heart of the European Union and is among half a dozen Chinese companies preparing to manufacture in Thailand, thereby gaining access to nearby markets through regional trade pacts.

“More alarming, however, are Chinese firms’ heavy spending on plants in Mexico, through which they can access the United States by way of the more favorable tariffs under the United States-Mexico-Canada Agreement (USMCA). This strategy is, in effect, an effort to gain backdoor access to American consumers by circumventing existing policies that are keeping China’s autos out of the U.S. market.”

All of this sounds very much like a “you” problem, Mexico.

The USMCA was designed to grant preferential tariff treatment to goods traded between the three countries. Those privileges should not extend to products largely made in China, especially products that will likely be used to surveil sensitive U.S. areas.

Commerce must proceed with its proposed ban on Chinese connected vehicle technology as quickly as possible, considering the magnitude of the potential exposure and China’s demonstrated interest in exploiting the vulnerability.

Full Article: Read More