The tariff will increase progressively in the coming months.
On Thursday, President Donald Trump threatened new tariffs against Mexico if the country does not clamp down on immigration enforcement for those crossing the border into the United States illegally. In a White House statement, he said the first round of tariffs would begin at 5 percent starting June 10. The new levies would impact “all goods imported from Mexico.”
According to the statement, the tariffs will increase in 5 percent increments if Mexico does not meet the United States’ demands. That means the levies will go up to 10 percent on July 1, 15 percent on August 1, 20 percent on September 1 and 25 percent on October 1. From there, the tariffs would remain at 25 percent “until Mexico substantially stops the illegal inflow of aliens coming through its territory.”
Apart from attempting to force action on immigration, the threatened tariffs aim to bring jobs now performed in Mexico back to the United States. “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. Companies that relocate to the United States will not pay the Tariffs or be affected in any way.”
How will this impact the automotive industry?
While these new tariffs against Mexico come as a direct result of the ongoing immigration dispute, new levies against “all goods” will certainly impact the automotive industry. Last year alone, manufacturers built 2 million cars in Mexico that were ultimately sold in the United States. All of the Big Three — Ford, GM and Fiat Chrysler — manufacture parts or assemble complete vehicles in Mexico then export them to the United States.
GM is the largest manufacturer operating in Mexico. Last year, its three assembly plants built more than 800,000 cars. Ford’s Mexican production plants have built just over 20,000 cars so far this year, through April 2019. FCA builds Ram Heavy Duty trucks, the Ram ProMaster van, and most of its engines in Saltillo, Mexico.
It’s difficult to predict exactly how tariffs will impact car prices, even among American brands. However, regardless of their political impact, automakers will likely raise retail prices in response to the hit on their bottom line by having to pay more to import cars from Mexico. Even if some efforts are made to move jobs back to the U.S., those efforts take time and may do little to offset the short-term effect on the industry.
Fiat Chrysler’s stock prices on the New York Stock Exchange slipped nearly 5 percent Friday, at time of writing. General Motors’ share values are down 4 percent, while FCA was down 2.5 percent.