Robert Lighthizer, former U.S. Trade Representative, proposed reducing Mexico’s dependence on Chinese inputs by strengthening rules of origin and implementing additional measures.
In an interview with Foreign Affairs, Lighthizer proposed making rules of origin stricter. He also suggested shifting the focus of “substantial transformation” toward incorporating more Mexican content into Mexican products.
A paradigm shift
According to him, there are several ways to achieve this. It will require creativity on the part of both Mexico and the United States. Moreover, more U.S. content in products would reduce reliance on Chinese inputs.
Lighthizer is one of the most influential U.S. trade policy strategists of recent decades. A lawyer specializing in international trade and a former official in the administrations of Ronald Reagan and Donald Trump, Lighthizer is the chief architect of the paradigm shift that led the United States to abandon the traditional consensus in favor of free trade and adopt a policy based on protecting domestic manufacturing, using tariffs, and engaging in strategic competition with China.
He led the renegotiation of the North American Free Trade Agreement (NAFTA), a process that culminated in the signing of the United States-Mexico-Canada Agreement (USMCA). Among the most significant changes promoted by Lighthizer are the strengthening of rules of origin for the automotive sector. There is also the incorporation of stricter labor obligations—including the Rapid Response Labor Mechanism—new disciplines for digital trade, and the inclusion of a mechanism for periodic review of the agreement.
Mexico’s Dependence on Chinese Inputs
Key points from the interview with Lighthizer in Foreign Affairs:
1.- Why free trade is no longer an option.
No country operates under true free trade: Lighthizer argues that almost no country operates under true free trade. With the exception of a small group of economists and ideologues, most nations seek to generate trade surpluses to enrich themselves.
The rise of industrial policy: Tariffs are no longer the main trade barrier. They have been replaced by invisible industrial policies (subsidies, currency manipulation, labor laws, preferential interest rates, and fiscal policies) that distort the market without being easily negotiable.
Destructive social and economic consequences: Decades of trade liberalization slowed U.S. economic growth, eroded its manufacturing base, increased income inequality, and led to job losses.
2.- Imposing tariffs is a more viable option than free trade.
Tariffs as a tool for rebalancing: The government was financed by tariffs, which led to the development of the American System, based on the principle of using tariffs to build up U.S. manufacturing and technology. In addition, tariffs are the most direct and measurable tool for offsetting unfair advantages and seeking balanced trade.
Incentive for the relocation of industry: Permanent tariffs provide certainty for companies to rebuild productive and innovative capacity within the country rather than moving their plants overseas.
National security and strategic resilience: Relying on free trade leaves a country vulnerable to “choke points,” such as the monopoly China has established over more than 60 critical minerals. However, tariffs make it possible to protect key sectors essential to defense and technological sovereignty.
3.- Increase in the global trade deficit, particularly the U.S. trade deficit with Mexico.
Massive U.S. trade deficit: The United States has an annual trade deficit of more than one trillion dollars with other countries in goods and services. This represents a transfer of wealth abroad.
This has resulted in a negative net international investment position of -27 trillion dollars. As a consequence, foreign capital owns a massive portion of U.S. assets.
Trade and Inflation Deficits in North America: In the case of Mexico, although the USMCA introduced improvements, the trade deficit with Mexico has grown substantially in recent years. They are a huge trading partner for us. However, we cannot sustain that kind of deficit with them.
Triangulation and third-party content: If you take a factory from China and move it to Mexico, then the deficit with Mexico looks larger and the deficit with China looks smaller. I believe we need more Mexican content in the goods coming from Mexico, because in many cases there isn’t enough Mexican content in what’s being imported. There’s too much Chinese content.
Differing Approach Toward Mexico: Unlike other countries around the world, in my analysis, we have an interest in Mexico’s prosperity, and they have an interest in ours. There’s a bond there that we don’t share with many other countries. It’s easy to see—it’s cultural, it’s the people, it’s the border. There are many reasons. Migration is just one of the many reasons we have this interest.
4.- Proposals for the renegotiation of the USMCA.
Maintaining the USMCA: I think there will have to be two new agreements; you can call it a single agreement if you want—that’s fine. I think scrapping the whole thing would be a mistake. It’s probably not politically… It’s too costly politically and isn’t worth what we’d gain. As for Mexico, we have to find various ways—and tariffs will be part of that—to reduce that trade deficit without crippling its economy. In fact, crippling its economy is, as I say, very bad for the United States as well.
Raising the rules of origin: By using rules of origin, changing the definition of “substantial transformation”—as I’ve said—to require more Mexican content in Mexican products, there are several ways to do this. It will require creativity from both Mexico and the United States (with a higher percentage of U.S.-sourced content in products to reduce dependence on Chinese inputs).
Use of the sunset clause: The most important thing we did right was to establish a sunset clause, so that we have a way to address this problem that has arisen (adjusting the trade balance with Mexico without destroying the agreement or harming the economies of both countries).