Chinese companies have significantly increased their investments in Mexico, with foreign direct investment rising by 276% since the imposition of U.S. tariffs on Chinese goods. These investments are to gain duty-free access to the U.S. market under the USMCA agreement. There is evidence suggesting that some Chinese goods are shipped to Mexico, relabeled as “Made in Mexico,” and then exported to the U.S., potentially avoiding tariffs.
According to Mexico’s Secretariat of Economy, investment from China to Mexico has increased to about $225 million annually, nearly quadrupling the average annual investment from the decade prior from 2007 to 2016. In 2021, Chinese investment in Mexico reached a historic high of $385 million. The increase of foreign direct investment corresponds with the levy of Section 301 tariffs by the Trump administration on Chinese imports. The recent investments include auto-parts, electronics, and furniture.
Chinese firms are well known for using transshipment to penetrate the U.S. market in spite of U.S. efforts to stop the practice. In December, the Department of Commerce found that to avoid tariffs on Chinese solar panels, Chinese companies were manufacturing solar cells and modules in China and then shipping them to Southeast Asian countries for “minor processing before being exported to the United States. Such actions amount to an effort to evade the existing antidumping duty.”
The U.S. Trade Representative (USTR) has to authority to initiate requests to investigate suspected transshipment. In its 2022 Trade Enforcement Priorities Report the USTR laid out one such case of enforcing USMCA in the case of potential transshipment via Mexico of timber forested in Colombia.
There have been cases nvolving steel where duties on Chinese steel led to steel coming from other countries like Vietnam where there was not one steelmaking furnace in the country. Auto parts represent a significant portion of goods imported from Mexico to the U.S., with some containing Chinese-origin components. The automotive industry is a key area where Chinese companies have invested in Mexican manufacturing to gain duty-free access to the U.S. Furniture, such as reclining armchairs and sofas, is another prominent category. Chinese companies like Man Wah Furniture have relocated production to Mexico to label their goods as “Made in Mexico” and avoid U.S. tariffs. Solar panels and related equipment have also been identified as products involved in transshipment practices, with significant increases in imports from Mexico while sourcing components from China.
Jeff Newman JD MBA, represents whistleblowers in major tariff fraud casesconcerning imported Chinese goods. His firm also represents whistleblowers in Medicare and Medicaid fraud cases under the False Claims Act (Qui Tam), and SEC, IRS and FINCEN whistleblower programs. He can be reached at Jeff@JeffNewmanLaw.com or at 617-823-3217
