Mexico would like to be wealthier than it currently is. One of the ways it seeks to achieve that goal is by attracting foreign investment. A natural candidate for foreign investment is its much wealthier northern neighbor, the United States.
But the United States makes it more difficult than it should be to invest in Mexico. One of the most important ways, for industries that produce physical goods, is the difficulty U.S. policy creates for trucking from Mexico. For decades, the U.S. has restricted Mexican carriers’ entrance into the country and prohibited cabotage (deliveries between U.S. destinations). The limitations are supported by environmentalists and organized labor. Years of study have shown no significant difference in safety or environmental performance for Mexican carriers operating in the U.S., yet the regulations persist. As a result, countless drayage truckers operate short routes near the U.S.–Mexico border, shuttling shipments back and forth to Mexican and U.S. carriers and adding time and costs to every shipment.
For the automotive industry in particular, the U.S. secured revisions to NAFTA to worsen the deal for Mexico. The new trade agreement, the USMCA, includes wage standards for autoworkers that the U.S. and Canada can easily meet, but Mexico cannot. Donald Trump repeatedly threatened tariffs on Mexico to return car manufacturing to the United States, not to mention his more general disdain for the country. Joe Biden’s administration has largely continued Trump’s trade policies, and Biden’s cheerleading for the United Auto Workers makes clearer U.S. disdain for Mexico’s automotive industry.
Given that background, the sentiment expressed in this Financial Times headline is a bit rich: “US concern over Mexico attracting Chinese electric vehicle factories.”
“Washington has raised concerns with Mexico over an imminent wave of Chinese investment into the country, as three of China’s largest electric-vehicle makers prepare to build factories south of the US border,” the story begins. “Mexican officials acknowledged they had to be cautious when considering Chinese investments because of the risks of upsetting the US,” it says.
One really great way to make Mexico less likely to turn to the Chinese for investment in its automotive industry is to make it easier for Americans to invest in its automotive industry.
As Mexico’s finance minister is quoted in the piece as saying, “Our trade and financial relationship with the US is completely dominant. . . . It’s not a great priority to dedicate time to countries other than the US.” Overall, the U.S.–Mexico trade relationship has strengthened in recent years. Mexico has surpassed China as the top country of origin for U.S. imports.
But when two successive administrations, one from each political party, have singled out Mexico’s automotive industry for scorn, can you blame Mexico for looking elsewhere for investment?
The U.S. would prefer the investment not be Chinese. Mexico would prefer the investment be American. There should be an easy solution here, if only U.S. leaders would reject protectionism and grasp that America’s trading relationships are a tremendous source of America’s power.