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The auto sector is expected to be worst hit by Donald Trump's planned tariff against Mexico. Here Ford's Cuautitlán plant in Mexico.  (Photo: Ford)
Thursday, June 6, 2019
Trade Talk

Trump Mexico Tariffs: Key Facts

Impact on key sectors, U.S. states of new tariffs on Mexico imports.


Plans by President Donald Trump to impose a 5 percent tariff on all imports from Mexico on June 10 (and increase that gradually to 25 percent in October), will have a significant on both the US and Mexican economies, experts warn.

U.S. trade with Mexico reached $171.7 billion in the first quarter, just barely higher than the $171.3 billion registered a year earlier, according to new U.S. Census bureau data analyzed by Latinvex. U.S. exports were $74.3 billion, a 1.5 percent decline, while U.S. imports grew 1.6 percent to $97.4 billion.

Last year, U.S.-Mexico trade grew 9.7 percent to $611.5 billion, with U.S. exports up 8.9 percent to $265 billion and imports expanding 10.3 percent to $346.5 billion, according to a Latinvex analysis of U.S. Census Bureau data. As a result, the U.S. trade deficit with Mexico grew 15 percent to $81.5 billion -- the highest on record.

Mexico was the second-largest U.S. trade partner in the first quarter, slightly behind Canada and ahead of China.


“The macroeconomic impact of the latest actions is likely to be much higher now than the direct effect of the tariffs themselves,” argues Adam S. Posen, president of the Peterson Institute for Internanional Economics. “First, I expect a significant persistent equity market drop, which will have wealth effects on consumption and investment. Second, the delay and diminishment of productive cross-border investment—including investments into the United States, which I have been warning about and tracking—will worsen. Companies will increasingly look for alternatives to locate their research and production activities—and erode the US tax base.”

A 5 percent tariff would cost American businesses and consumers $17 billion, according to the U.S. Chamber of Commerce.

“Should the tariff reach the President’s threatened cap of 25%, that tax would eclipse $86 billion,” it warns. “But given how even a 5% tariff can disrupt trade flows, the economic impact could be much larger.”

Trade with Mexico supports economic growth and jobs in every state, the chamber points out, but it says Texas, Michigan and California will be hardest hit. Texas, for example, stands to lose between $5.4 billion and $27 billion, depending on the tariff rate.

The tariff on Mexican goods could cost the U.S. economy more than 400,000 jobs and hit Texas especially hard, according to a new study by the Perryman Group quoted by CNBC.



Mexico is by far the largest foreign source of parts used by the industry, with about 16 percent of all auto parts used by U.S. assembly plants coming from Mexico, according to an estimate from the Center for Automotive Research quoted by CNN.

Finished cars and trucks also come into the United States from Mexico — about 2.7 million autos were imported from Mexico last year (worth $52 billion), nearly a million more autos than came from Japan, the No. 2 source of auto imports, CNN says.

US auto suppliers, which import heavily from Mexico, could face a drop in earnings of 50 percent or more if Trumps enacts 25 percent tariffs, Business Insider reports.

Toyota said that Trump's proposal could cost its major suppliers $1 billion, highlighting growing concern in the U.S. auto sector about the potential damage of a new front in the Trump administration's trade wars, Reuters reports.

Deutsche Bank estimates that Trump's Mexico tariffs could U.S. car prices by as much as $1,300 on average, hurting demand and perhaps cutting US auto production by as much as 3 million vehicles a year, an 18 percent drop from current levels --the greatest blow to the US auto industry since the Great Recession sent the industry hurling toward near collapse 10 years ago, CNBC reports.

The direct impact on the auto industry is bound to be sharp and fast, given the 5 percent tariff, if implemented, will be multiplied back and forth across the border through the global supply chains in every North American auto produced, Posen of the Peterson Institute warns.

U.S. auto parts maker Aptiv Plc said if the Trump administration levied a 5 percent tariff on Mexican imports, it would cost the company $17 million per month, Reuters reports.


U.S. refiners warned the Trump administration that tariffs on imports from Mexico could deliver a punishing blow to refiners and raise the cost of gasoline just as the U.S. driving season kicks into high gear, Reuters reports.


The tariff would increase the cost to beer importers by $12.5 million in June, potentially reaching $984 million per year at the maximum tariff rate, according to data from the Beer Institute, an American trade group, quoted by The New York Times. 


In Mexico, the tariffs are expected to further slow down the economy – which already had been reeling from uncertainty related to new president Andres Manuel Lopez Obrador’s policies.

As much as a fifth of Fitch Ratings rated companies would be negatively impacted.

“The imposition of broad-based tariffs on US imports of Mexican goods could have a direct negative revenue effect on 20% of Fitch Ratings' Mexican-rated corporates,” it says. “However, depending on the duration and level of tariffs levied, there would also likely be indirect effects on Mexican companies linked to the broader macroeconomic repercussions of heightened trade tensions. Blanket tariffs, if implemented, would also diminish confidence of the potential approval of the United States-Mexico-Canada (USMCA) trade agreement, elevating and prolonging the threat of trade policy uncertainty.”


© Copyright Latinvex


See also Mexico Tariffs: Trump’s Credibility Deficit


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