USTR Says China's EV Dominance Belongs in USMCA Review; Mexico Wary

"The China piece cannot be overstated. It is going to be -- and it already is -- a really important element of tension and concern that is coming up in this very intimate trade relationship that we have between three countries," she said at a March 6 Brookings Institution event examining the state of the USMCA.

Brookings Senior Fellow Joshua Meltzer noted that the U.S. didn't comply with the dispute panel's ruling that the auto rules of origin allow roll-up.

Tai rejected that framing. She said each of the countries balances the legal process' conclusions with each being a sovereign country. Withdrawing concessions -- which no country has yet done in response to lack of compliance -- is "intended to be an inducement to finding a solution," which she said could be compliance with the ruling, or an accommodation. It was "never meant to be something you can shove down the throat of the other side," she said.

"I think the conversation within the USMCA on autos has to be something larger than what has happened in this dispute," Tai added. "Those rules of origin, and our lack of agreement on what those rules of origin mean is an important component," she said, but the more important question, she said, given China's export surge in electric vehicles, is: "How are we as these three countries going to reassert our interest in each other’s success, reassert our stakes in this supply chain to keep pace with the changes and the pressures that are affecting all three of us at the same time?"

Mexico doesn't see these pressures the same way. A Chinese automaker already assembles electric vehicles in Mexico for the Mexican market, and Chinese automakers have captured about 9% of the Mexican new car market.

Panelist Luz Maria de la Mora, a former vice minister for trade in Mexico, noted that Tai had said earlier in the program that the U.S. will bring up China in the 2026 USMCA review.

"I would say that … I would hope that we have a trilateral vision to deal with China," de la Mora said. She added that sectors affected by the U.S.-China trade war have been shifting production to Mexico, and that China is Mexico's second-largest trading partner, after the U.S.

"China, at the end of the day, is a player and will have to continue to be a player," she said.

Geronimo Gutierrez, a former Mexican ambassador to the U.S., in response to a question about whether Mexico could bar Chinese investment if the U.S. is really upset about it, said that a memorandum of understanding between the U.S. and Mexico, signed in December, to cooperate on investment and security matters, is vague.

When the moderator asked Tai about how the rapid response labor mechanism, which is designed to improve Mexican working conditions, was working, she said it's her favorite topic in USMCA.

She said that those who opposed NAFTA said that by integrating with the Mexican economy, U.S. workers would have an erosion of their rights and working standards -- and she said they were right.

"Go to our industrial Midwest to fully understand the impact on communities," Tai said. She added that NAFTA was not the only contributor to deindustrialization -- automation and the entry of China into the World Trade Organization also played a role -- but said it was "absolutely a part of the equation."

She said adding a rapid response labor mechanism in the NAFTA rewrite helped the administration sell "a promise this would be better."

On a later panel, Cathy Feingold, director of the international department at the AFL-CIO, said the rapid response mechanism has produced real wins for workers in Mexico, but the wage gap between U.S. and Mexican workers is still 10 to 1.

"This is exciting, but it’s the floor," she said, suggesting that forced labor, child labor, occupational safety and discrimination could be incorporated into an expanded rapid response in future agreements or during the USMCA review.

She said the auto rules of origin and Chinese investment in the Mexican auto sector need to be addressed in that review.

Fellow panelist Juan Gallardo, chairman of the board of a major bottling company in Mexico, said the review should not be "the opportunity for everyone to come in with new suggestions for what they’d like to see."

Gutierrez also expressed anxiety about the review, which he said will take place in "an extremely politicized environment in each of the countries. If we’re not careful, we could end up transforming a review process for improvement into something that could damage the trade and investment relationship."