The United States-Mexico-Canada Agreement (USMCA) entered into force on July 1, 2020, after the Trump Administration renegotiated the 1994 North American Free Trade Agreement (NAFTA). Four years later México continues to make significant gains in the export of automobiles to its northern neighbor. Generally, the USMCA’s trade between the three countries has remained unchanged from NAFTA. Since 1988, automotive exports from México have been steadily increasing each year from about 13 million in 1988 to almost 290 million units through April of this year.
China remains the world’s largest exporter of automobiles with the United States lagging far behind in second place. México slides in at seventh place in global automobile exports, according to the latest figures. The United States, however, is the largest importer of automobiles in the world, importing over $234 billion in cars in 2023. Almost half of the automobiles imported into America come from Canada and México, the two partner countries in the USMCA.
México accounted for almost $70 billion worth of cars imported into the US in 2023.
The USMCA is set to be reviewed by the three countries in 2026. The so-called “sunset clause” requires the countries to agree that the trade agreement is working for them every six years. The first review session in the 16-year cycle is set for 2026.
México having elected its first female president, Claudia Sheinbaum, who assumes office on October 1, has indicted her preference for continuing with the trade treaty. Sheinbaum has said that she sees no problems with the upcoming review.
Meanwhile, Justin Trudeau is unlikely to continue as Canada’s prime minister in October 2025 because he has lost support for his government. In November, the U.S. will hold its presidential elections likely between the incumbent Joe Biden and challenger Donald Trump. It was Trump who renegotiated NAFTA into the USMCA, after threatening to withdraw from NAFTA in 2018. The USMCA or as some have called it, NAFTA 2.0 generally kept NAFTA intact. After proclaiming the USMCA a victory, Trump is unlikely to pull out in 2026. Meanwhile, Biden has said he supports the USMCA accord.
Other than resolving lingering minor issues in agriculture it is unlikely that the 2026 review will lead to major changes in the accord, except for nearshoring by China that American car manufacturers are starting to sound the alarm on.
Chinese Nearshoring
In May, the Biden Administration imposed a 100% tariff on Chinese electric vehicles as part of the administration’s $18 billion worth of tariffs on Chinese imports. A poisoned pill included in the USMCA prohibits Canada and México from making trade agreements with a “non-market country,” effectively keeping the Chinese out of the North American economic market through the USMCA.
However, through foreign investments made in México, Chinese manufacturers can effectively bypass Biden’s tariffs in electric automobiles. Already Chinese manufacturers are investing is manufacturing plants in México as a “backdoor” into the US consumer market. Because the manufacturing is completed by Mexican workers in Mexican manufacturing plants, the rules of origin under the USMCA meets the requirements of the free trade agreement allowing the commodities to enter the American market.
México encourages the investment in México by outside investors, including Chinese investments as new manufacturing facilities provide employment for Mexicans and needed infrastructure for México.
Even before Biden’s tariffs on Chinese electric vehicles were imposed, Canadian car manufacturers were already sounding alarms over Chinese investments as a backdoor into the North American market.
According to the latest figures, México’s automobile exports to the United States continue to dominate the American market.
All sectors of the automotive sector including automobiles, heavy trucks and auto parts have continued to grow for the Mexican manufacturers since 2021. One of the fastest growing automotive parts commodities are batteries for electric vehicles.
Today, the global market for battery swapping is valued at around $5.3 Billion. By 2030, that market should grow to around $29.2 Billion. With Biden’s tariffs and the growth of energy efficient vehicles, batteries for electric vehicles can become another manufacturing commodity for Mexican manufacturers, even those built with investments from China.
The question will be, will either Biden or Trump, depending on who wins in November be willing to tackle Chinese nearshoring in 2026? Moreover, will Sheinbaum hold the course on Chinese investments that grow the Mexican economy or will she be willing to sacrifice the Mexican economy to pacify the neighbors to the north?
Martín Paredes is a Mexican immigrant who built his business on the U.S.-Mexican border. Straddling the U.S.-México border for many years, Martín understands that the imaginary line separating two countries on a map creates two cultural identities that merge creating a culture that is unique to the borderland. Since 2000, Martín has been reporting on the border politics, the corruption and the public policy of one of the most unique communities in the world by exposing the secrets few dare to.
