Low Cost Chinese EVs Produced in Mexico Can Threaten US Automakers

It’s a scenario that terrifies America’s auto industry: Chinese carmakers establish operations in Mexico to take advantage of North American trade rules. Once set up, they flood the U.S. market with ultra-low-priced electric vehicles.

As these Chinese EVs go on sale across the country, America’s homegrown EVs — which cost an average of $55,000, roughly double the price of their Chinese counterparts — struggle to compete. Factories close, and workers lose jobs across America’s industrial heartland.

This could become a painful replay of how government-subsidized Chinese competition devastated American industries from steel to solar equipment over the past quarter-century. This time, it would be electric vehicles, which America’s automakers see as the future of their business.

“Time and again, we have seen the Chinese government dump highly subsidized goods into markets to undermine domestic manufacturing,’’ wrote Sen. Sherrod Brown, an Ohio Democrat, in an April letter to President Joe Biden calling for an outright ban on Chinese electric vehicles in the U.S. “We cannot let the same occur when it comes to EVs.’’

The Alliance for American Manufacturing has warned that low-priced Chinese EVs pose a potentially “extinction-level event’’ for America’s auto industry.

The trade deal that Beijing could potentially exploit — the U.S.-Mexico-Canada Agreement — was negotiated by the Trump administration and enacted in 2020. Its rules could allow Chinese autos assembled in Mexico to enter the United States either duty-free or at a nominal 2.5% tariff rate. This would enable China to sell its EVs well below typical U.S. prices.

To counter this threat, the U.S. has several options. Customs officials could rule that Chinese EVs don’t qualify for low-duty or duty-free benefits of being assembled in Mexico. U.S. policymakers could pressure Mexico to keep Chinese vehicles out of the country. Alternatively, they could bar Chinese EVs from the U.S. on national security grounds.

Donald Trump has expressed his stance on the issue, telling Time magazine in April: “I will tariff them at 100%. Because I’m not going to allow them to steal the rest of our business.’’

However, any steps the U.S. government might take would likely face legal challenges from companies wanting to import the Chinese EVs.

This threat from Beijing emerges just as U.S. automakers face slowing EV sales, even while investing billions to produce them in the high-priced bet that Americans will embrace battery-powered autos in the coming decades. Comparatively high prices, despite federal tax incentives for buyers, have weakened EV sales in the United States. So has public anxiety about a scarcity of charging stations, potentially made worse by rising thefts of cables at charging stations.

Optimists suggest that an influx of ultra-low-priced Chinese EVs could accelerate U.S. electric vehicle purchases, speed up investment in charging stations, and force down prices.