President Donald Trump’s threat to impose tariffs on Mexican imports, effective June 10, will cripple U.S. automakers and cost people their jobs.
The proposed tariffs will disrupt the supply chain for every automaker, domestic and foreign, in the United States, according to Rebecca Lindland, who spent 10 years at IHS Automotive as director of research and was the senior director and executive analyst at Kelly Blue Book. She now operates her own auto website, Rebeccadrives.com.
“Nobody wins in the automotive industry,” said Lindland. “I mean union workers, suppliers, its blue collar, its white collar, it is across the board and nobody wins in this scenario.”
‘U.S. trade with Mexico is all about cars’
Sixty-seven percent of U.S. imports from Mexico are intra-company trade according to Deutsche Bank research. Torsten Slok, the chief economist and managing director at Deutsche Bank Securities, explains that means two-thirds of companies producing goods in Mexico are producing products for their own supply chain and other manufacturers.
“U.S. trade with Mexico is all about cars. This would cripple the auto industry,” he said. “It would bring car production to a halt pretty quickly.”
Slok cites trade data that shows 35% of U.S. auto exports, from a value added standpoint, consist of parts manufactured in Mexico. That percentage reflects the value of parts produced in Mexico and Canada and included in cars assembled in the U.S. The number has grown every year since the mid-1990s when the North American Free Trade Agreement, NAFTA, was ratified.
“The whole industry really changed when NAFTA came into play,” says Lindland. “We are one region and the biggest challenge is that we are not flexible. Vehicles have 30,000 parts and if you are missing a couple of screws you can’t build that vehicle.”
Trump threatens to keep raising tariffs
Trump is using the International Emergency Economic Powers Act (IEEPA) to impose a 5% tariff on Mexican imports unless the Mexican government stops migrants trying to reach the U.S.
“Mexico must step up and help solve this problem” Trump said in a statement released Thursday night by the White House. The president went on to say the tariffs will be raised to 10% in July and could eventually hit 25% by October 1.
“If Mexico fails to act, tariffs will remain at the high level, and companies located in Mexico may start moving back to the United States to make their products and goods,” he said.
But Slok pointed out that manufacturing doesn’t work that way. “If you cripple the U.S. auto industry it will have implications for the auto industry in the rest of the world,” he said.
Lindland agrees. “We can’t just turn on a dime. We are about making good solid affordable vehicles for consumers and if you disrupt the supply chain you are disrupting jobs, dealers, consumers.”
According to Lindland, automakers have created an efficient manufacturing process to keep prices down for consumers. Setting up shop in the U.S. won’t be easy she says It’s a complex and extensive process, “We are not interchangeable. We can’t just swap things out.”
Adam Shapiro is co-anchor of Yahoo Finance On the Move.
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