It might be what’s keeping them afloat. But it certainly cuts into the sales of the American models. As the cheaper brands become better the higher end brands have been incorporating cheaper components. They may become identical sooner than later.
I don’t think Fender wants to just become known for Squiers and Mexi-Fenders.
Fender already had to move Squire out of Japan and into Mexico. The Japanese Squires were developing an epic reputation. Still very highly coveted.