Afraid of losing the US-Canada trade deal, Mexico is changing its laws and removing parts of China

MEXICO CITY (AP) – Mexico has been under fire recently for allegedly serving as a transit hub for Chinese parts and products in North America, and officials here fear that re-elected Donald Trump or politically embattled Canadian Prime Minister Justin Trudeau could try to leave their country without a free trade agreement. -US-Mexico-Canada.

The ruling party in Mexico Morena is so afraid of losing the trade agreement that President Claudia Sheinbaum said on Friday that the government is in the process of getting companies to replace Chinese parts with domestic ones.

“We have a plan to replace these goods from China, and produce most of them in Mexico, either by Mexican companies or mainly by North American companies,” said Sheinbaum.

While Sheinbaum said Mexico has been working on that effort since 2021 in a global supply crisis — when factories around the world are hampered by shortages of parts and especially computer chips from Asia — it appears to be an uphill battle. Even the United States has faced major challenges in bringing chip production home despite billions in subsidies and incentives.

Mexico gained tens of thousands of jobs when US and foreign automakers moved their plants to Mexico under a free trade agreement to take advantage of lower wages. But the idea that Chinese parts — or even complete cars — might be playing a part in that arrangement to further decimate the U.S. auto industry has angered some people north of the border.

So Mexico is negotiating with private companies to be able to move parts production here.

“Next year, God willing, we will start making microchips in Mexico,” Mexican Economy Secretary Marcelo Ebrard said Thursday. “Yes, they are not the most advanced chips, but we will start producing them here.”

Mexico’s ruling party, which is often very resistant to being seen to bend to US demands, is moving in other ways as well.

The ruling party is in the process of abolishing the independent institutions of control and supervision established by the former president. That includes anti-monopoly, transparency and regulatory bodies. Along with the changes that will make all judges stand for election in Mexico, that has raised concerns in the US and Canada.

Countries are required under the treaty to have independent organizations, in part to protect foreign investors. For example, they can prevent the government from approving the monopoly of a state-owned company that would force competitors out of the market.

So the ruling party’s legislators are essentially rewriting the proposed rules to exactly mimic the minimum requirements accepted under the trade agreement.

“What we’re doing is making the changes so they’re exactly the same as what’s in the United States, to clarify that,” Ebrard said.

It’s all part of the legal defense of the trade deal, which was signed in 2018 and ratified in 2019. Mexico hopes that the rules of the agreement will prevent the US or Canada from simply walking away when the trade agreement is up for review in 2026. Experts agreed, saying it was impossible to completely abandon the agreement.

Gabriela Siller, director of economic analysis of the financial group Banco Base notes that if a country is not satisfied with the trade agreement during periodic reviews, such as in 2026, there is a clause in the agreement that says they can ask for an annual review. to find a solution, and continue to do so for ten years while the agreement is in force.

“That is, they won’t be able to get out until 2036,” Siller said. “I think they will play hard football against Mexico in the 2026 review.”

As with any marriage, when the agreement is no longer valid for one party, it may drag on for years but it is death by thousands.

CJ Mahoney. who served as deputy US trade representative in the first Trump administration, said in a speech at the Texas-based Baker Institute in September that the United States is unlikely to end the trade deal. But with growing critics of the deal, it could keep renewing it for years.

“The cost of not renewing immediately is very low,” Mahoney said. “I think the tendency to just kick the can down the road is going to be very strong.”

Because most companies will not make large investments in manufacturing facilities without certainty, that can be a serious if not fatal risk to the deal.

How much does Mexico really buy from China? Mexican officials say they have fewer parts and products imported from China than the United States. But given the large size difference between the two countries’ economies, it’s a valid but weak argument.

In July, the US imposed tariffs on steel and aluminum imports from Mexico that are made elsewhere, in an attempt to stop China from evading import tariffs by sending goods to Mexico. It includes a 25% tariff on unsmelted or cast steel in Mexico and a 10% tariff on aluminum.

Sen. Sherrod Brown, an Ohio Democrat, called for an end to Mexican steel imports, saying “the alarming increase in Chinese steel and aluminum coming into the country through Mexico … is dishonorable and a threat to American jobs, and to our economy.” and national security.”

Ultimately, Mexico may be forced to reject Chinese imports, but it won’t be easy.

“Reducing dependence on Chinese imports will not be achieved in the short or medium term,” said José María Ramos, professor of public administration at Colegio de la Frontera Norte in Tijuana.