Mexico Considers Imposing Tariffs Against US EV Tax Credit

Mexico is considering taking legal actions in response to what is discussed to be contrary to free trade and the USMCA trade agreement, now that the US Congress and the UAW have proposed a US$12,500 domestic electric car tax credit

The electric vehicle tax break initiative is supported by Joe Biden, the United Auto Workers union and several congressional Democrats.The initiative includes US$4,500 for union-made US EVs and establishes that only US-built electric vehicles are eligible for the tax credit after 2027.

However, the initiative has received opposition from major global automakers such as Toyota Motor Corp, Volkswagen AG, Daimler AG, Honda Motor Co, Hyundai Motor Co and BMW AG. The proposal has also been addressed in many countries, including Mexico through the Secretary of Economy Tatiana Clouthier, who has described the EV tax credit as “discriminatory”. 

Clouthier mentioned that Mexico is considering a range of legal actions such as imposing tariffs, declaring that “in the past, Mexico has imposed tariffs and would have to do or propose something important and strategic for electric vehicles […] so that the consequences can be felt.”

After this statement, the secretary of economy described that even if it is a “non-desirable” course of action, it was necessary to safeguard the Mexican automotive industry which generates over a million direct jobs in the country and could create migratory pressures.

Mexico argues that the EV tax credit initiative is a measure contrary to free trade as it is a protectionist policy and goes against the USMCA agreement by discriminating against foreign automotive producers. 

“The proposed conditions would reduce consumer choice in the US market to only two vehicles that are eligible for the full credit out of over 50 electric vehicles currently available.This would seem to be counterproductive to meeting our share carbon emission targets,” reads a press release from the Embassy of Mexico to the US reported by MBN. 

Other countries like Germany, Canada, Japan, South Korea, France, Italy and countries in the EU, have also classified the proposal as violating international trade rules.

This comes in a moment when electric vehicles have taken the spotlight, as carbon emission commitments made by many countries and companies during the COP26 have shifted the automotive industry toward the production of EVs. 

This tendency has pushed companies like Uber to rely on carbon offset to neutralize emissions and smartphone companies such as OPPO, Huawei, Xiaomi and Apple, to have EVs manufacturing plans.

However, Mexico faces a problem with the Evs' low popularity within the country. Because of this, efforts from companies like Giant Motors Latin America have emerged, announcing “the launch of the JAC Mexico Pure Electric 2022 vehicle line at the fifteenth anniversary of its Sahagun City plant. The line will introduce more affordable EV options for Mexican drivers, hoping to increase the percentage of sustainable vehicles in transit,” reported by MBN.