Scores of Chinese manufacturing companies are evading US tariffs by shipping their products to factories in industrial parks in northern Mexico. In many cases, those products are fully made in mainland China but once they reach the Mexico plants they as stamped as made in Mexico. Because of Mexico’s free-trade pact with the US and Canada, products made in China can be shipped to Mexico and then trucked into the U.S. and not be hit with a 25% tariff.
The Nafta agreement does require that a higher proportion of the value of any goods must come from North America to qualify for tariff-free treatment but there are few checks and balances and, in many cases, the products are almost fully competed in China and then either said they were made in Mexico or they are tweaked slightly to make it seem so. Chinese investment in Mexico jumped from $154 million in 2016 to $271million the following year, when Donald Trump took office threatening a trade war. The pandemic’s supply-chain snarls and the angst caused by Chinese President Xi Jinping’s tech crackdown have catapulted yet more Chinese companies across the Pacific, with investment in Mexico hitting just under $500 million last year.
This past summer, the U.S. announced steps to fight the circumvention of U.S. tariffs on steel and aluminum by China and other countries that ship products through Mexico, implementing a North American “melted and poured” standard for steel. Under a new policy, steel product imports from Mexico will be subject to 25% U.S. “Section 232” tariffs unless the steel is documented to have been melted and poured in Mexico, the U.S. or Canada.Similarly, for aluminum product imports from Mexico to escape the 10% Section 232 tariffs, they must not contain primary aluminum that is smelt or cast.
However, China’s push if on. Integrated logistics companies like Maersk are building out their capacity to handle the spiking trucking volumesentering the U.S. Year-to-date, through September, cross-border trade between Mexico and the U.S. rose by approximately 52%, according to the latest data from Motive, which tracks trucking visits to North American distribution facilities for the top five retailers. Republican U.S. Senator Marco Rubio on Thursday proposed barring Chinese manufacturers from evading tariffs by setting up factories in other countries like Mexico, Vietnam or Malaysia. Rubio accused Chinese manufacturers of shifting production to other countries that face lower U.S. tariffs, saying it allowed them “to evade tariffs and flood the U.S. market with cheap goods.” A House committee raised concerns last week about a Chinese auto parts firm that have sought to evade tariffs.
Jeff Newman JD MBA, represents whistleblowers nationwide relating to Medicare and Medicaid fraud, under the state and federal False Claims Act (Qui Tam) and corporate whistleblowers in major claims under the SEC, CFTC and FINCEN whistleblower programs. He can be reached at Jeff@JeffNewmanLaw.com or at 617-823-3217
