Chinese companies are on the move. Facing increasing tariffs on Chinese goods under the Biden administration, such as those on steel and aluminum, Chinese manufacturers responded by increasingly moving production wholesale to Mexico. Once there, they could take advantage of the USMCA free trade agreement to ship goods into America tariff-free, stamping a “Made in Mexico” sticker on their goods in the process. Now, the Trump administration is upending that plan, proposing tariffs on China and Mexico alike. 

If the plan is to give Chinese companies pause about investing in Mexico, it seems to be working. China’s biggest EV manufacturer, BYD, is facing increasing headwinds in its efforts to open a major new factory in Mexico. However, tariffs on Mexico—and Canada—as Trump is now suggesting, would also upend one of the most successful trade blocs in history. Can we preserve North American trade while still meaningfully addressing the issue of Chinese economic penetration? Team Trump should insist on a new North American agreement on Chinese capital, companies, and cheap consumer goods.

Imposing tariffs on North American partners has every hallmark of a Trump-style negotiating tactic—an opening salvo to force Mexico to the table on important issues like immigration and fentanyl. However, Trump is also aware that the USMCA—the free trade agreement that he negotiated to replace NAFTA—is up for review in 2026. Trump’s opening shot on tariffs suggests those discussions have already begun. The fact that tariffs may be imposed on Canada as well as Mexico when Canada sends little fentanyl and few immigrants over the border suggests that this is exactly what Trump has in mind.

When Chinese firms move operations to Mexico, there are real costs for the United States, the reliability of our supply chains, and the domestic industries of all three USMCA countries. Heavily subsidized Chinese goods and unfair trade practices such as intellectual property (IP) theft and monopoly positions undermine the manufacturing capacity of the United States, Mexico, and Canada. Chinese companies, under China’s National Intelligence Law, may also be using domestic or near-shored operations to gather sensitive information on U.S. and Mexican competitors and citizens. Finally, Chinese companies are often an extension of the Chinese state, allowing the Chinese Communist Party (CCP) to establish a foothold in North America and use the American market to support the development of technologies that are central to China’s military and surveillance objectives.

Constraining the unfettered flow of Chinese direct investment into North America makes good sense. That should start here at home, where the $28 billion in foreign direct investment from China in 2023 is a much larger problem than the $18 billion Canada received and the $.2 billion that went to Mexico. That said, we need a new North American consensus on the volume of Chinese capital, companies, and cheap consumer goods that flow into our countries.

First, North America should consider some of the rules that China itself imposes on foreign direct investment. For instance, Chinese companies who seek to bring operations to North America should: (1) only operate via domestic joint ventures, where the domestic entities retain operational control; (2) grant time-limited licenses of technology with an ultimate knowledge transfer of the underlying IP; (3) be blocked from market access for non-compliance; and (4) be prevented to selling products to public sector entities to protect against surveillance concerns.

Second, the United States, Mexico, and Canada should ensure that Chinese companies operating in the USMCA free trade zone are maximizing the amount of raw materials, content, and labor that is being sourced from North America—making sure that Chinese supply chains setting up shop on our continent are boosting domestic entities and workers in the value chain, rather than simply supporting suppliers and partners back in China. As China seeks to expand its influence in the Western Hemisphere, the United States should be an ally to and defender of Central and South America through local investment.

Third, we need to establish new rules for the collection and safeguarding of our region’s critical data and information. The CCP seeks to build a global, private-sector surveillance system—and the USMCA should not leave that door open. China’s National Intelligence Law gives the CCP the power to demand sensitive or proprietary information from any Chinese company operating around the world. For Chinese companies to operate within North America, they should be required to disclose what data or information they collect and what steps they will take to protect that information from CCP demands. Failure to abide by these safety measures should lead to Chinese firms being permanently barred from our markets.

Trump hasn’t yet taken office, but the USMCA renegotiation has already begun. As we reconsider the trade that makes us stronger, we need to hold Mexico, Canada, and ourselves to high standards on Chinese investment. 

Elaine Dezenski is senior director and head of the Center on Economic and Financial Power at the Foundation for Defense of Democracies.

Image: Cdrin / Shutterstock.com.