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Exclusive-Mexico’s new government mulls tax incentives to lure foreign companies

By Cassandra Garrison and Anthony Esposito

MEXICO CITY (Reuters) -Mexico is considering tax credits to attract foreign firms to invest and produce domestically, targeted at electric vehicle (EV), semiconductor, rare earth minerals, battery and electronics sectors, a top Mexican trade official said in an interview.

The comments come as Mexico’s new government assesses how to spark more investment as companies look to move supply chains closer to their main market, while simultaneously navigating a turbulent and more protectionist period in the U.S. ahead of presidential elections.

“We are seriously analyzing creating tax credit incentive programs very similar to those in the United States and Canada … and we believe that would allow us to attract many companies to Mexico,” deputy Foreign Trade Minister Luis Rosendo Gutierrez told Reuters on Friday.

Gutierrez said the incentives would apply to companies from any country interested in investing in Mexico, including China.

Mexico would not be a “springboard” for China to enter the United States, he underscored.

An internal government document seen by Reuters said Mexico had started working with companies such as Taiwanese electronics manufacturer Foxconn, chipmaker Intel (NASDAQ:INTC), U.S. automaker General Motors (NYSE:GM), logistics firm DHL, and carmaker Stellantis (NYSE:STLA), to identify products that can be manufactured in Mexico instead of being imported from Asia.

According to the document, Mexico is looking to replace imports from China, Malaysia, Vietnam and Taiwan.

Gutierrez declined to give further details on the firms named in the document.

The approach towards Chinese auto-makers marks a possible shift from the previous government of former President Andres Manuel Lopez Obrador, with Reuters reporting in April that officials had said they would not give local incentives such as low-cost public land or tax cuts to Chinese automakers due to pressure from the United States.

A U.S. embassy representative in Mexico declined to comment for this story. 

Additionally, the administration of Mexico’s new President Claudia Sheinbaum is carefully considering Washington and Ottawa’s policies towards China, in order to be more aligned in addressing potential unfair Chinese trade practices ahead of a scheduled revision of the USMCA North American trade pact.

“The pressure that we have… the question is what are we going to do with China in the face of some practices that sometimes seem to be unfair,” Gutierrez said. 

“We are analyzing these practices to standardize what the United States and Canada are doing with Chinese investment or with Chinese imports.” 

Steel imports were an example, Gutierrez said, referring to efforts by the trade partners to fight the circumvention of U.S. tariffs on steel by China and other countries that ship products through Mexico amid increasing concerns about China’s excess industrial capacity flooding global markets with exports amid weak domestic demand.    

Mexico would continue to prioritize the U.S. and Canada due to their strategic alliance through USMCA, but that didn’t imply Mexico would “break with China” or “deny them investments in Mexico,” Gutierrez said. 

U.S. Republican presidential candidate Donald Trump has warned he would impose new tariffs to prevent Chinese automakers from building cars in Mexico and exporting them to the United States. 

Polls show Trump and Democratic nominee Kamala Harris are locked in a tight race ahead of the Nov. 5 election, with the outcome expected to be decided by slim margins in battleground states.

Mexico is prepared to work with either candidate and does not see a major difference in the trade relationship with Trump or Harris as U.S. president, Gutierrez said.    

“We understand that there is an issue of national security and the United States will have to understand that our discussions are also discussions about maintaining Mexican sovereignty,” Gutierrez said. 

Sheinbaum and her new cabinet were working to reassure international investors – including during a high-level summit last week- that Mexico continues to be a safe bet for new business after a controversial judicial reform spooked markets and dealt a blow to the country’s peso currency. 

Despite the financial jitters, no companies had decided to pull their investments from Mexico, Gutierrez said. 

“I sincerely have not heard of a company leaving because it is afraid to invest here, not a single one,” he said.

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