US proposes limits on foreign parts in AI hardware production

A hard ceiling on the proportion of an AI server, chip or related equipment that can be made from components sourced beyond North America sits at the centre of Washington's proposal. That approach would directly affect the assembly strategy many companies have used to move Chinese-made parts through Mexico. Once implemented, the threshold would increase both costs and complexity for manufacturers that have relocated AI hardware assembly south of the US border, partly to keep products flowing into America with lower tariff exposure than direct Chinese imports face.

Chipmakers and contract manufacturers with cross-border supply chains are the most vulnerable, given that standard semiconductors used in AI servers currently enter the US with minimal tariffs. Any company outsourcing final assembly to Mexico while sourcing parts from China or elsewhere in Asia would have to rethink its supply chain if a strict North American content rule is introduced.

---

Washington is pushing for a hard limit on the amount of non-North American content allowed in AI chips or servers.

Summary of key points

• The US proposal would restrict the level of non-North American components permitted in AI hardware, including chips and servers, according to the Wall Street Journal
• The aim is to prevent Chinese and other foreign companies from routing parts through Mexico to avoid US tariffs
• The proposal is part of negotiations to revise the USMCA, a deal President Trump has repeatedly threatened to abandon
• AI hardware has become Mexico's biggest export to the US this year, surpassing automobiles
• A new round of US-Mexico trade talks is expected in Washington as early as next week
• Senator Bernie Moreno said the objective is to stop China from using Mexico and Canada as a gateway around US trade restrictions

The United States wants Mexico to agree to a cap on how much of an AI hardware product — including chips and servers — can be made from parts sourced outside North America, the Wall Street Journal reported, citing people familiar with the negotiations. The proposal aims to prevent Chinese and other foreign firms from using Mexican assembly to bypass US tariffs on Chinese-made goods.

The rules-of-origin threshold under discussion would apply to a category of hardware that has expanded rapidly and become Mexico's largest single export to the US this year, overtaking automobiles. That growth reflects the substantial shift of manufacturing capacity to Mexico as companies seek to keep AI equipment flowing into the US market while facing lower tariff exposure than Chinese-made alternatives.

The discussions are part of a broader renegotiation of the US-Mexico-Canada Agreement, the trilateral trade deal President Trump has repeatedly threatened to walk away from. A fresh round of talks between US and Mexican trade officials is expected in Washington as soon as next week, when the two sides are also likely to discuss potential reductions in US tariffs on steel, aluminum and automobiles.

Washington is not confining its ambitions to AI hardware alone. Officials are also weighing similar content thresholds for other products, including medical equipment, to reduce Chinese content across supply chains routed through Mexico. The gap in current tariff treatment is significant: cars, auto parts and advanced computer chips already face levies, but the more common semiconductors used in AI infrastructure can currently enter the US largely tariff free, leaving a route officials fear Chinese suppliers could exploit.

Senator Bernie Moreno of Ohio, who has been consulting with Mexican industry groups on the issue, told the Journal his concern is that China is using the Western Hemisphere to circumvent existing US trade agreements by having goods labeled as Mexican made when they are effectively Chinese in origin. He argued that any renewed trade agreement must prevent Mexico and Canada from becoming a channel for China to bypass US trade restrictions.

If a strict North American content threshold is adopted, it would add a new layer of compliance for manufacturers and could reshape investment decisions in Mexico's fast-growing electronics sector, at a time when the broader USMCA relationship remains under active renegotiation.