A think tank event on the USMCA yesterday discussed issues related to U.S. attempts to coordinate investment screening with Mexico.

At a Brookings Institution event, there was a question from the audience about U.S.-Mexico cooperation on screening of Chinese investments in Mexico:

There has been lots of concern in the U.S. about Chinese investment in Mexico, although the absolute number is actually quite small. And at the same time, Tesla has also brought lots of car parts suppliers to Mexico to build factories over there. But then, the US and Mexico have reached an agreement in December in terms of screening foreign investment, with China in mind clearly. I'm just curious, how can this be done? Can Mexico just block Chinese investment if the US is really concerned about it?

According to news reports, the agreement referred to by the questioner was signed in December 2023. A Treasury Department press release explains that "U.S. Secretary of the Treasury, Janet L. Yellen, and Mexico’s Secretary of Finance and Public Credit, Rogelio Ramírez de la O, signed a Memorandum of Intent (MOI) to affirm the importance of foreign investment screening in protecting national security and express their desire to establish a bilateral working group for regular exchanges of information about how investment screening can best protect national security."

The press release also says: "The MOI recognizes the importance of the U.S.-Mexico economic relationship, the benefits of maintaining an open investment climate, and the critical role of effective investment review mechanisms in addressing national security risks that can arise from certain foreign investment, particularly in certain technologies, critical infrastructure, and sensitive data."

In remarks made in conjunction with the signing, Yellen offered the following explanations:

We will also continue supporting the creation of reliable, secure supply chains that span the United States and Mexico and benefit both our economies through actions to protect our national security in critical industries. I am pleased to announce that the United States and Mexico have today signed a Memorandum of Intent that reaffirms our joint commitment to counter the threat certain foreign investments pose to our national security and establishes a bilateral working group to exchange technical knowledge and best practices. Like our own investment screening regime, CFIUS, increased engagement with Mexico will help maintain an open investment climate while monitoring and addressing security risks, making both our countries safer.

Participants on the USMCA panel responded to the question as follows. Gerónimo Gutiérrez, a former Ambassador of Mexico to the U.S., noted the lack of information on the memorandum:

We don't know what the MOU signed in December really means. It was signed by the Treasury Department and [Secretaría de Hacienda y Crédito Público]. ... I may be mistaken but to my knowledge, as of today, there has not been additional information. It was a general memorandum of understanding to cooperate on investment and security matters. And that's it. And the text is actually quite short. ... there's very little information. That's all that I would say. I think it's important to understand the reach and the breadth of that agreement.

And Luz María de la Mora, the former Undersecretary for Foreign Trade at the Mexican Secretariat of Economy, and now a Nonresident Senior Fellow at the Atlantic Council, added that efforts related to China should only lead to de-risking, not decoupling:

I think that China definitely is the elephant in the room in this case. China is Mexico's second largest trading partner. It's the U.S.' third largest trading partner. And when you see that the nearshoring trends, you see that suppliers from China are establishing in Mexico to be able to supply the manufacturing operations that are coming into Mexico.

But I want to just say one last thing, that we're talking about two different groups. On one hand, we have those critical sectors that the Biden administration has identified as critical, essential with special treatment and industrial policy where I think there's potential with respect to export controls. But there's these other sectors that have to do with the U.S.-China trade war, where what we're seeing is just a deviation of trade. And I honestly think that I mean, China at the end of the day, will have to be, is a player and will have to continue to be a player. I heard from the U.S. administration saying we don't want to decouple, we want to de-risk. And I think that that is the answer.