In a meeting between BYD and Mexican officials, the latter would have stressed that they will not give stimulus like those provided in the past and would suspend any future meetings with the Chinese automakers, said sources who requested to remain anonymous. 

Under pressure from the United States, the Mexican government is keeping Chinese automakers at bay by refusing to offer them incentives, such as low-cost public land or lower taxes for investments in electric vehicles' production, said three Mexicans officials familiar with the matter.

The last meeting between top Mexican officials and a Chinese automaker was in January, the sources said, with executives from BYD, one of the world's largest electric vehicle makers by sales.

At the meeting, Mexican officials made clear that they would not provide stimulus like those given to automakers in the past and would suspend any future meetings with Chinese automakers, said the sources, who asked not to be identified.

President Andrés Manuel López Obrador's office did not immediately respond to a request for comment. The Ministry of Economy, in charge of promoting industry and commerce, declined to comment.

BYD executives and Chinese embassy officials in the Latin American country did not immediately respond to a request for comment. A White House spokesperson said US President Joe Biden will not allow Chinese automakers to flood the market with vehicles that pose a threat to national security.

Reuters, which reported the news first, could not determine which Chinese automakers have requested meetings since then. Mexican officials do not typically disclose subsidies given to companies for setting up factories.

About twenty Chinese car manufacturers sell their products in Mexico, but none yet have a plant in the country. Chinese automobiles have a third of the Mexican market.

Sources attributed the move to pressure from the US government, specifically the Office of the US Trade Representative (USTR) to keep Chinese automakers out of the North American free trade zone.

A USTR official's response did not address the reported pressure, but mentioned that the United States-Mexico-Canada Agreement (USMCA) was not intended to "provide a back door to China and others who may be seeking access to our market without paying tariffs".

The official said the USTR is focused on that issue in relation to automobiles, steel and aluminum.

The US intervention reflects growing fears in the auto industry, unions and political circles in Washington that Chinese automakers such as BYD, SAIC, Geely, Chery and JAC intend to use Mexico as a back door to sell cheap electric cars in the United States without paying high US tariffs, now at 27.5%.

USTR head Katherine Tai said Wednesday that the United States must take decisive action to protect electric vehicles from subsidized Chinese competition.

BETWEEN A ROCK AND A HARD PLACE

Mexico, Latin America's second-largest economy, is caught in the crossfire between the world's two largest automotive powers and markets.

In early March, U.S. Sen. Marco Rubio of the Republican Party proposed legislation seeking much higher tariffs on Chinese vehicle imports. Days later, three Senate Democrats from car-making states urged the Biden administration to raise import tariffs on Chinese electric vehicles.

Chinese automakers can avoid U.S. tariffs by setting up shop in Mexico, as long as they follow rules on how much of a vehicle must be produced locally.

"A considerable proportion of the goods arriving in Mexico by sea will likely be transported by truck to the United States, giving rise to the suspicion that the increase in trade we are seeing is due to importers trying to avoid US tariffs. "said Peter Sand, an analyst at consulting firm Xeneta.

To avoid US tariffs, goods must have a certain percentage of regional assembly and components, which varies by product and sector. At least 75% of major vehicle parts - such as the engine or transmission - must originate in North America.

Mexico's decision to turn its back on Chinese automakers comes despite the enthusiasm of some local politicians, including the favorite to win the Mexican presidential election in June, Claudia Sheinbaum, to attract more auto production to the country, create jobs and bring affordable electric vehicles to the local market.

Despite the headwinds, Chinese automakers like BYD are still looking to put down roots in Mexico.

In late February, BYD - which has competed with Tesla for the top spot in the global electric vehicle market - insisted that any factory in Mexico would serve the local, rather than the US, market. But many industry officials are skeptical.

One of the sources said BYD was now seeking incentives from state governments even though they are substantially less beneficial than federal ones.

Industrial states such as Durango, Jalisco, the State of Mexico and Nuevo León said they are seeking to attract Chinese automakers to set up plants in their territories, offering them a wide range of incentives.

In December, Nuevo León approved US$153 million in incentives for a Tesla plant.

In the past, federal stimulus has been generous, including free land, water and energy and help hiring workers, said Francisco Bautista, a partner at EY in Mexico.

The expert added that the incentives have been reduced during the current government, but some have still been granted to large firms such as Audi, of the Volkswagen Group.

In September, Mexican officials from the Ministries of Economy and Foreign Affairs traveled to Washington to meet with their counterparts from the Department of Commerce, the Department of State and the USTR as part of high-level talks between both trading partners.

Although it was not explicitly on the agenda, the meeting raised for the first time the topic of fear that Chinese automakers would establish their electric vehicle production in Mexico, the sources said.

The officials met again in January 2024 in Toronto. There, American public employees made another request to hinder Chinese automakers.

The Foreign Ministry did not immediately respond to a request for comment. The Economy Ministry declined to comment.

Mexican officials said that although Chinese investment could help the local economy, the government is worried about angering Washington on the verge of reviewing the USMCA in 2026.

According to the "sunset clause", in July 2026 the three countries will decide whether to extend the USMCA for another 16 years. Mexican officials fear that their American counterparts could try to reform the trade pact to Mexico's detriment, one of the sources said.