Chinese cars are increasingly driving a wedge between the US, Mexico and Canada ahead of a July 1 deadline to renew North America’s faltering free-trade pact, deepening a rift already torn open by Donald Trump’s tariffs.
The US is the only major market Chinese cars have yet to conquer — but it remains firmly off-limits. Washington has in effect banned them to combat suspected surveillance technology amid fears the vehicles, heavily subsidised by Beijing, would kill off America’s domestic auto industry.
By contrast, Mexico’s love affair with cheap Chinese cars has made it Beijing’s top car export destination and Canada is actively courting investment from Chinese electric-vehicle makers. For Beijing, that offers a tantalising toehold from which to launch into the US market.
“They are positioning themselves so that whenever the political landscape changes . . . they’ll be ready to provide vehicles in that market as well,” said Farid Ahmad, head of Dealer Solutions and Mergers and Acquisitions, who is working with Chinese companies to expand across Canada.
“They’re knocking at the [US] gate,” he added.
Former president Joe Biden imposed the de facto ban on Chinese cars entering the US, but Trump is under fierce pressure to protect the auto industry. Ford chief executive Jim Farley recently warned Chinese competition would be “devastating” for American manufacturing.
Mexico and Canada’s openness to Chinese cars has inflamed tense talks over the US-Mexico-Canada Agreement because both nations need to keep Trump onside as July 1 looms. Without an agreement to extend the pact, it would be subject to annual reviews that would undermine the long-term certainty companies need to build strong supply chains.
The free-trade deal is one neither Mexico nor Canada can afford to junk.
“Can any individual sector derail the entire [USMCA]? The only one I see having that potential is automotive,” said Juan Carlos Baker, a former Mexican vice-minister for foreign trade.
“It represents close to 5 per cent of Mexico’s GDP — literally hundreds of thousands of jobs. So if you don’t get this right, you’d be jeopardising Mexico’s economy,” he added.
Over the past three decades, North America has built a highly integrated car industry, with a supply chain that straddles all three countries. Yet Trump’s tariffs have made it cheaper for the US to import some vehicles from Japan and South Korea — rather than from Canada or Mexico.
Canada, seeking to diversify its trade relationships beyond its domineering neighbour, last month imported its first Chinese EVs under a low-tariff regime.
Ottawa struck a deal with Beijing earlier this year to allow 49,000 Chinese EVs into the country with a 6.1 per cent tariff rather than its previous 100 per cent levy. More than 2,900 vehicles arrived in Canada in May and annual imports are expected to rise to 70,000 over the next five years.
With its manufacturing base hard hit by Trump’s tariffs, Canada’s industry minister Mélanie Joly also met BYD, Chery, Geely and Shanghai Launch Automotive Technology in China this month to discuss investments as part of her attempt to drum up hundreds of billions of dollars in non-US trade.
Joly said all four of the Chinese carmakers were “willing to explore creating joint ventures” to build cars in Canada.
“We want to make sure that we offer great vehicles to Canadians that are affordable and with the latest technology, while protecting our auto workers and industry,” she told the FT.
Yet Brian Kingston, president of the Canadian Vehicle Manufacturers’ Association, warned opening up the market to Chinese EVs posed a risk to renewing the USMCA.
“Actively courting Chinese automakers is incompatible with renewing our far more important trade relationship with the US,” he said.
In a sign of how contentious Canada’s deal to import Chinese EVs remains, Prime Minister Mark Carney quietly sought to mollify Trump at the recent G7 meeting in France.
He told the US president, who had threatened to impose tariffs of 100 per cent on all Canadian goods if Ottawa deepened trade ties with Beijing, that the capped level represented “less than 3 per cent of our market”.
Trump responded: “That’s good, I like it.”
Mexico, long home to European and US car factories that export north of the border, has just one small Chinese car assembly plant. But cars from the Asian country are flooding in: at least one in five cars now sold is Chinese-made. The true figure is likely to be higher because some Chinese brands, including BYD, do not report their sales in Mexico.
Mexico’s ageing car fleet — the average vehicle is about 18 years old — offers attractive growth prospects. About 1.5mn cars are sold annually in a country of about 130mn people.
“If you see a new car on the road here now, it’s likely to be Chinese,” said Janneth Quiroz, research director at brokerage Monex in Mexico City. “We clearly haven’t reached the peak.”
Chinese car sales in Mexico include vehicles made by companies such as BYD, Geely and Great Wall Motors as well as legacy brands such as Volvo Cars and MG that are now Chinese-owned.
“Each [North American] country is now at a different starting point with Mexico already importing Chinese vehicles, with Canada joining them this year,” said Tu Le, founder of Detroit-based consultancy Sino Auto Insights.
“That’s going to likely have an outsized impact on how much the USMCA continues to be marketed as ‘win-win’ for the parties involved.”
For its part, BYD expressed caution about using Mexico and Canada as a springboard to enter the US.
“If we do Mexico, it’s only focused on the Mexican market. If we do Canada, it is only focused on the Canadian market,” Stella Li, BYD’s top international executive, said on the sidelines of an event in London. “We are not planning to do the US, but if we do the US, we will be in the US [directly].”
But US concerns linger. Two Democratic senators last month introduced the Protecting America from Chinese Cars Act, calling Chinese vehicles — even those crossing into the US on day trips — “surveillance packages on wheels” capable of feeding data to “adversarial nations”.
Mexico has made efforts to placate Trump, who sees the country as a back door for Chinese goods into the US. In January, it slapped 50 per cent tariffs on Chinese cars.
The influx of Chinese cars has critics in Canada too. Doug Ford, premier of Ontario, the home of the nation’s auto sector, has branded Chinese cars “spy vehicles”. He has also said Chinese cars are unfair competition for Canadian auto workers.
But even he has said he could be persuaded if Beijing invested.
“If they’re willing to come here and . . . manufacture, create jobs and create parts here,” he said this year, “well, now we’re on a whole different page.”
Additional reporting by Paula Simón in Mexico City
