Concern around competition from China is weighing on American lawmakers and auto companies.

China's growing global auto dominance has some lawmakers on edge.

At the center of that conversation is a country known for its beaches and its ideal trade proximity to the U.S., Mexico.

The Chinese have targeted Mexico as a prime export market.

Across the U.S. border, the country has seen an influx of Chinese-made new energy cars.

The Chinese automakers came to the country very aggressively.

And now some Chinese automakers, including Tesla rival BYD, are announcing plans to build factories in Mexico.

But for the U.S., there's concern this might be part of a larger strategy.

The Chinese would love to access the U.S. market because there are profits to be made in the U.S. market.

Getting in directly to the United States market is tricky because of the tariffs and other obstacles.

And so I think many of these Chinese automakers look at Mexico as a backdoor in the United

States of America.

Washington has built a wall to block cheap exports using tariffs.

But experts say these may only be buying time.

It's the Chinese version of a Godzilla.

Get ready.

This thing's coming and it's going to shake up the world.

So how has Mexico become a hotspot for Chinese auto companies?

And will the country become a pathway for these cars to drive into the U.S.?

Chinese automakers are winning over millions of drivers around the world.

Last year, China produced over half of all electric vehicles sold worldwide.

Supported by government subsidies and lagging domestic demand, Chinese EV makers have had to look overseas to sell their cars.

Last year, China overtook Japan to become the world's largest auto exporter, sending 4.9 million cars overseas.

And 1.2 million of those cars were electric.

China has built up such automotive production capacity that it can't possibly sell all of those vehicles in China.

So it has to look to other markets.

Almost overnight, Mexico has become a major market.

Chinese automakers are becoming more international.

So Mexico fits in this broader story of Chinese companies trying to access new markets.

In 2023, the country was the leading importer of cars made in China, importing a total of $4.6 billion worth of Chinese vehicles.

That's compared to $4.4 billion from U.S.-based companies.

In May, BYD launched a brand new hybrid pickup truck in Mexico.

It was the first time the company had debuted a new product outside of China.

But Mexican consumers are quickly embracing Chinese-made EVs.

Last year, one in 10 vehicles sold in Mexico were made by a Chinese company, outpacing every other foreign country.

Even consumers weary of electric cars are drawn to Chinese EVs for their affordable price tags.

BYD sells its Dolphin Mini in Mexico for around 398,000 pesos.

That's around $21,000, a little less than half the price of the cheapest Tesla.

The Chinese automakers came to the country very aggressively.

They have, to be honest, very good promotions.

Chinese cars, it's a good product that sells at a very reasonable price.

Experts say China's entrance to Mexico follows a broader strategy to target emerging economies, which can be friendlier to foreign investment.

Latin America, parts of Asia, and the Middle East have all seen influxes of Chinese-made cars in recent years.

Unlike the developed economies, the emerging ones are less complicated, less complex in terms of regulations.

And I'm talking about safety standards or emissions standards.

So the Chinese carmakers, if you look at the figures, they are gaining traction faster in those economies than in the developed economies.

For example, Latin America, which the current government in Brazil was quite enthusiastic about welcoming BYD's newest investment, they now have a factory in Brazil that they're building.

Similarly, I think the biggest recipient of Chinese investment in terms of new electric vehicle factories is Thailand.

So usually these companies go where they're welcome.

Earlier this year, multiple Chinese automakers have announced plans to open EV factories in Mexico.

Mexican states Durango, Jalisco, and Nuevo León have even offered incentives to Chinese automakers to open manufacturing operations.

These include tax breaks, free land, and help hiring labor.

Experts say this process of nearshoring, or bringing production closer to the final target market, would benefit both parties.

For Mexico, the factories would bring jobs and limit the cost of importing so many cars.

For Chinese companies, they could increase a foothold in the North American market.

But this is what has Washington worried.

Mexico is already a manufacturing powerhouse, serving as a hub for many international auto brands.

Tesla has been exploring manufacturing sites in the country, although plans are on hold for now.

This started in the mid-90s with the signing of the North America Free Trade Agreement, or NAFTA, which removed tariffs on many goods traded between the U.S., Mexico, and Canada.

The big winners were auto companies.

The most recent iteration of the trade agreement was enacted by Donald Trump in 2018.

It's called the U.S.-Mexico-Canada Agreement, or the USMCA.

First, the Germans came, you know, Audi, BMW.

And then the Japanese came, Toyota, Honda.

And then lastly, the Koreans came, Hyundai, Kia, and others.

Some people now are arguing that the next wave is going to be driven by Chinese companies.

Mexico is an attractive production platform, not only for Chinese companies, but for other companies as well, in part because of that free trade access that it has to the American market.

And it can do something that in trade terms is called circumvention.

In order to sell its overcapacity of cars, China needs to access wealthier markets like the U.S. and Europe.

But so far in the U.S., they've been blocked by tariffs and political tension.

To get around these barriers, China could take advantage of the USMCA.

It would look something like this.

If a Chinese auto company were to set up operations in Mexico or Canada and prove that the majority of materials that they use to build their cars are sourced locally, they could export their cars into the U.S. market virtually duty-free.

For EV production, Chinese automakers have narrowed in on Mexico for its manufacturing infrastructure, low labor costs, and most importantly, proximity to the U.S.

That's a strategy that Chinese companies have used before.

For more than a decade now, China and the United States have been playing a high-stakes game of whack-a-mole when it comes to trade policy tariffs and trying to get into the market.

And we've seen China do this in other types of manufacturing, from appliances to auto parts to steel.

And so autos is the next logical sector for China to scale up investment in Mexico.

It's a potential scenario that terrifies U.S. officials and automakers.

If they're able to do that, set up in Mexico to manufacture the United States, they would definitely pose an imminent threat to American automakers, if for no other reason because their costs would be lower.

Really the most lucrative market in the world, in a lot of ways, is the American market.

We're only 5% of the world's population, but we consume 20% of the world's goods.

We are great at consumption, and Americans like a deal.

And if they were to see a Chinese-made EV that comes in at $15,000 or $20,000, they're very price-motivated, and these things could potentially wipe out a lot of the U.S. competition.

For now, none of the major Chinese automakers have begun building factories in Mexico, and many have stalled plans, citing tension with the U.S.

The sentiment among the Chinese automakers I've talked to is that things are so tense between the U.S. and China right now, that now's not the right time to come and invest in the U.S., not the right time politically, just too much tension.

Mexican government officials have likewise paused incentives to Chinese automakers.

But BYD has publicly walked back intentions to enter the U.S. market, at least for now.

They're not ready.

But then for BYD, we are ready.

The USMCA is set to be reviewed in 2026, and who leads that discussion from the White House remains up in the air.

At the Republican National Convention in July, Donald Trump made a pitch for Chinese companies to set up shop in the U.S. if he were to become president.

Those plants are going to be built in the United States, and our people are going to demand those plants.

I know, and look, I've heard Donald Trump say a couple of times that he wants to see those Chinese companies come to the United States.

I think that would be a massive mistake.

Experts say this could be detrimental to the American auto industry.

When you look at, for instance, the flat glass industry in the United States, you think of the big windshields that are put on automobiles.

We used to make a lot of those in the United States.

All over the state of Ohio, many other places.

Many of those companies went out of business because, again, China more than a decade ago provided big subsidies to its glass companies.

They wiped out the competition.

So I don't want to see that happen with automobiles in the United States, because the Chinese auto companies just don't have that same cost of capital as, say, Ford or Stellantis or

GM do.

Vice President Kamala Harris, meanwhile, has not shared her policy stance on EV production.

When will the Chinese actually begin to invest in the United States or Mexico to manufacture?

Not before 2026, I'd say, is the quickest we'd see something happen.

And so much depends on how the next administration wants to play things.

In the meantime, Mexico still remains in the crossfire of a trade war between two global superpowers in the EV revolution.

CNBC reached out to the Mexican government, as well as Chinese automakers BYD, SAIC, and

Sherry.

We did not hear back by the time this video went online.