Mexico at a Crossroads: U.S. or China

In the realm of the automotive industry, there is an undeniable truth: Chinese companies like BYD, Chirey, GAC, GWM, JAC, and MG are redefining the global landscape. These companies are like the many heads of a hydra and are making significant inroads into the Mexican market. But what does this mean for Mexico and its economy?

Automotive companies in China operate under a governmental system that turns them into extensions of the state. The Chinese government controls virtually the entire industry, allowing them to act with a speed of coordination and direction that is hard to match. Meanwhile, in Mexico, we find ourselves surrounded by these firms that have begun to flood the market with vehicles at very competitive prices.

The COVID-19 pandemic disrupted global supply chains and left many automotive companies in distress. I remember visiting dealerships of well-known brands like Mazda and Volkswagen, where I was informed that no cars were available. Dealerships were selling vehicles with promises of delivery many months later, which depressed sales. In contrast, the Chinese government viewed this crisis as an opportunity: while others struggled to obtain parts from China to manufacture cars, they decided to take advantage of the disruption in supply chains to produce internally and accumulate massive inventories.

By the end of the pandemic, China was ready to launch its offensive: flooding global markets with Chinese cars. This strategy was not only astute but also well executed. They capitalized on a moment of weakness among competitors who had halted and restructured their operations to cope with the pandemic, positioning themselves strongly in Europe and Latin America. Chinese brands began to rapidly gain ground against Toyota, Volkswagen, and American companies Ford and General Motors.

Elon Musk, leader of Tesla and known for his bold futuristic vision, used to laugh a few years ago when BYD was mentioned as a competitor. He knew that publicly acknowledging a rival's potential would only make them stronger; for him, it was like talking about a ghost. However, reality imposed its weight: BYD has managed to capture a significant share of the Chinese market and is now expanding its presence in Europe and Latin America. Its focus on affordable electric vehicles has put Tesla in a defensive position.

Aware of BYD's advance and other Chinese brands, Tesla decided to change its strategy. The initial proposal to build a plant in Monterrey faded under market pressure. The pandemic slowed Musk down and gave China an advantage, leading him to focus on protecting his market share in the United States, where competition intensifies daily.

To achieve this, Musk decided not only to compete in the automotive sector but also in the political arena by financially and media-wise supporting Donald Trump. Musk aimed to push three issues onto the governmental agenda: first, protectionist policies to prevent Chinese cars from entering the U.S.; second, reducing regulations to favor the growth of American cars; and third, using Trump's influence in the European Union to reclaim that market and push back against China. Musk has expressed support for far-right nationalist political parties in Europe, whose agenda he believes will help him gain market share and commercially defeat China.

In this automotive chessboard, Donald Trump plays a crucial role. His protectionist stance has led Musk to seek political alliances to prevent the massive influx of affordable Chinese electric vehicles into the United States. Aware of the impact this could have on his dominance in the largest market in the world, Musk has been willing to do whatever it takes to maintain that position.

Although there are currently tariffs and other protectionist measures that complicate the entry of Chinese cars into the United States and Canada, Mexico could become a key strategic point. Through the USMCA (T-MEC), there is potential for manufacturing Chinese cars on Mexican soil and then exporting them northward, taking advantage of free trade and possibly serving as a Trojan horse for introducing Chinese cars into the U.S.

The Mexican government faces a critical decision: should it support Chinese investment or align itself with the United States? This choice is complex and painful; opting for one means giving up on the other, with both options carrying significant implications for the country's economic future. Canada, which has historically aligned with Mexico for negotiations with the U.S., will enter an electoral process next year; thus, Canadian Prime Minister Justin Trudeau has sought alignment this time with the conservative wing and future President Trump, leaving Mexico in a disadvantageous position.

The situation becomes even more complicated when considering that Mexico has historically relied on external factors for its economic growth. It has leveraged U.S. growth to be "pulled" forward; however, this has not occurred in recent years: while the U.S. grows annually by 3% or 4%, Mexico has struggled to grow by even 1%. Projections for next year are bleak; many anticipate a more challenging situation.

If Mexico does not act with a cool head, pragmatism, and strategic vision, it could miss an invaluable opportunity to position itself as a key player in the global automotive industry. The decisions made today will affect not only the immediate present but also the country's economic future. As the popular saying goes: "Time always proves right." In this case, it will be crucial to observe how events unfold in the coming months. The ability of the Mexican government to navigate this complex situation will determine whether it can capitalize on opportunities or become trapped between two relentless forces. The story is just beginning to be written; what matters is being prepared for what lies ahead.