Mexico is facing criticism for allegedly facilitating the entry of Chinese goods into North America. Concerns are rising that a re-elected Donald Trump or a struggling Canadian Prime Minister Justin Trudeau might exclude Mexico from the US-Mexico-Canada trade agreement. In response, President Claudia Sheinbaum announced efforts to replace Chinese imports with locally produced goods.

Sheinbaum stated, “We have a plan with the aim of substituting these imports that come from China, and producing the majority of them in Mexico, either with Mexican companies or primarily North American companies.” This initiative has been ongoing since the 2021 global supply chain crisis, but challenges remain. The United States also struggles to bring chip production back despite significant incentives.

Trade Agreement Challenges

Mexico’s ruling Morena party is working to prevent losing the trade deal. They are urging companies to shift parts production to Mexico. Economy Secretary Marcelo Ebrard mentioned plans to start microchip production in Mexico next year, although they won’t be the most advanced initially. “Next year, God willing, we are going to start making microchips in Mexico,” Ebrard said.

The ruling party is also dismantling independent regulatory agencies established by previous administrations, including anti-monopoly and energy bodies. This move has raised concerns in the US and Canada as these agencies are required under the trade agreement to protect foreign investors.

Regulatory Reforms and Legal Adjustments

To comply with trade agreement requirements, Mexican legislators are revising laws to align with minimum standards accepted under the accord. Ebrard explained, “What is being done is to create a reform so that it’s almost exactly equal to what exists in the United States, so we can clear that up.” This legalistic approach aims to safeguard the trade pact signed in 2018 and approved in 2019.

Experts believe that completely abandoning the agreement is unlikely. Gabriela Siller from Banco Base highlighted that if any country is dissatisfied during reviews like in 2026, they can request annual reviews for up to a decade while the agreement remains active. “That is, they wouldn’t be able to get out until 2036,” Siller noted.

Economic Implications and Future Prospects

C.J. Mahoney, former deputy US trade representative, suggested that while critics may delay renewing the pact, it’s improbable that it will end abruptly. “The costs of not renewing immediately are actually quite relatively low,” Mahoney said. This uncertainty could deter companies from making significant investments without assurance of stability.

Mexico argues it imports fewer Chinese products than the US does, but given their economic size difference, this claim holds little weight. In July, the US imposed tariffs on Mexican steel and aluminum made elsewhere to curb China’s tax avoidance through Mexico. These include a 25% tariff on steel not melted or poured in Mexico and a 10% tariff on aluminum.

Concerns Over Chinese Imports

Senator Sherrod Brown from Ohio called for halting Mexican steel imports due to rising Chinese steel and aluminum entering through Mexico. He stated this poses a threat to American jobs and national security. José María Ramos from Colegio de la Frontera Norte noted that reducing reliance on Chinese imports won’t happen quickly.

Ultimately, Mexico may need to address Chinese imports more aggressively, but it’s a complex task. The nation continues its efforts to maintain its position within the trade agreement while balancing economic pressures and international relations.