What the United States Can Learn from the Mexican Auto Import Scheme

Commentary by Yuri Unno

Published September 8, 2025

President Trump says tariffs will help create more manufacturing jobs in the United States. A strategic approach to using tariffs could strengthen national security by reducing reliance on foreign suppliers from adversaries for critical goods and materials and create more manufacturing jobs. If the president's goal is to create more jobs and safeguard strategic industries, the United States should consider adopting a quota system similar to the one used by the Mexican government. Since 2004, the Mexican government has been granting auto manufacturers tariff-rate quotas (TRQs) based on their domestic economic contributions. For original equipment manufacturers (OEMs) to avoid paying 20 percent tariffs on automobile imports into Mexico, they must demonstrate their significant economic contributions to the government each year. The Mexican government considers several factors when allocating quotas.

How Does It Work?

First, each OEM can get 10 percent of its annual vehicle production in Mexico as its TRQ. If you produce 100,000 units in Mexico annually, you are eligible to import 10,000 units duty-free under TRQs. The quota is generated based on the production volume from November to October of each year. Most OEMs import additional models not produced domestically to offer customers a wider range of options. If a company wants to do this without paying a 20 percent tariff on imports, it must increase domestic production to earn more quota.

Second, a new investment can also count towards the quota. For every new investment of 1 million U.S. dollars the OEM makes, 150 units are added to its quota. That means, if an OEM decides to invest an additional $100 million in Mexico, the company can import 15,000 units of vehicles without 20 percent tariffs. Each OEM can use the investment amount for the 12 previous months from the quota request. The direct linkage between the quota and the local investment will encourage companies to continue investing in domestic manufacturing rather than expanding market share through imports.

Lastly, the quota is also linked directly to the local purchasing amount. For every million U.S. dollars spent to purchase from Mexican suppliers in Mexico, the quota is increased by 10 units. So, if your local purchasing is $1 billion, then you can import 10,000 additional units of vehicles under the TRQs. The Mexican government allocates the quota using the purchasing amount from November to October each year. The direct link between the local procurement amount and the quota encourages the company to do more local procurement.

The Mexican government must approve the quota on an annual basis. Manufacturers must reapply each year, which drives them to continually increase their investment in local production and purchasing.

According to CEIC, Mexican automobile production was only 1,359,542 units in 1997. Although their production temporarily fell during the Covid-19 pandemic, Mexican Business News reports that their domestic production reached up to 4.2 million units in 2024. Although many other factors may have contributed to the growth, the quota system helped some OEMs increase their domestic production, investment, and purchasing.

The United States Could Do More

In addition to the Mexican system, the United States could also consider allocating quotas based on research and development (R&D) expenditures and workforce training. Providing an environment that fosters innovation is crucial, as it can lead to more sustainable economic growth. It can also enhance national security by keeping critical technology developments in the country. Additionally, addressing the shortage of skilled workforce is vital to boosting production in the United States. This holistic approach could motivate manufacturers to pursue a long-term, integrated strategy to build a resilient foundation for future growth.

While linking domestic investments to quotas could encourage domestic production, lifting duties on critical components could further accelerate domestic manufacturing and help relocate more manufacturing jobs into the United States.

Although it may seem counterintuitive, removing import duties on critical components from allied countries can strengthen domestic manufacturing and national security. Given that certain materials and technologies are not immediately available within the United States, establishing a predictable and cost-efficient secure supply chain could encourage greater domestic investment by lowering barriers to entry for producing within the United States.

Under the U.S. Manufacturing Investment Accelerator Program, the National Association of Manufacturers proposes a similar scheme. It suggests that the administration should issue a "manufacturing speed pass" to allow manufacturers to import critical inputs without the added cost of tariffs. They say that "for every dollar of manufactured inputs that are imported, [the industry gets] $1.40 of [manufacturing] output." Ensuring access to inputs enables us to produce more goods in the United States.

Conclusion

Investing in the United States is more expensive than in many other countries due to its high labor costs. It is essential for the United States to actively create a more competitive and welcoming investment environment-one that attracts global capital, fuels innovation, and secures long-term economic leadership while ensuring its national security. Rather than simply imposing tariffs, offering duty-free quotas tied to domestic economic contributions-such as local production, investment, procurement, R&D spending, and workforce training-and reducing tariffs on critical components from allied countries could be a more effective way to attract companies to invest and increase national security in the United States.

Yuri Unno is an adjunct fellow (non-resident) with the Economics Program and Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.

Programs & Projects