Implications of the Trump-Mexico Trade Agreement for the U.S. Automotive Industry: Automakers, Manufacturers and Investors
Over the weekend, Trump signed orders for tariffs against China, Canada and Mexico in order to pressure them to stop the flow of illegal drugs and migrants into the United States.
This border-hopping supply network was supported by trade agreements such as NAFTA, which Trump reviled, and its replacement USMCA, which Trump signed. The Detroit 3, which have significant operations in the U.S.’s closest neighbors, would be particularly vulnerable to cost increases.
According to analysts at Bernstein research, 25% tariffs on both countries would hurt the automotive industry by up to $110 million a day. Analysts at Jefferies, an investment bank, project that it would add about 6%, or $2,700, to the average U.S. vehicle prices for car shoppers.
“We urge all parties to reach a swift resolution in order to provide clarity and stability for the entire U.S. auto industry,” Jennifer Safavian, President and CEO of Autos Drive America, a trade group representing international automakers, said in a statement Saturday. The Alliance for Automotive Innovation, the group representing U.S. auto manufacturing, noted that “seamless” trade in North America supports a $300 billion auto industry.
The tariffs would have consequences for suppliers and workers, as well as consumers, according to a memo by the MEMA trade group.
He told reporters on Monday that the United States is not dependent on Canada. “We don’t need them to make our cars,” he said.
One significant challenge for automakers — and their surrounding ecosystem of suppliers, dealers and repair shops — is Trump has always said these particular tariffs are meant to motivate policy changes, and are not intended to be permanent. That is in contrast to long-term tariffs onChina which are meant to help U.S. companies compete with subsidized Chinese competitors, or to the possibility of widespread, across-the-board tariffs meant to raise revenue for the government.
Beijing says that they have done all they can to stop the flow of the synthetic drug into the US. China threatened to launch a case against them in the WTO, after Trump’s tariffs were announced.
He said that the underlying economic and political grievances between China and the U.S. run much deeper than those between the U.S. and its neighbours.
In a note to clients, the head of China economics at Capital Economics stated that the measures were only relatively modest. He estimated that the targeted goods represent about 12% of China’s total imports from the U.S.
China’s commerce ministry also put two U.S. firms – PVH Group and Illumina, Inc. – on its “unreliable entity” list, saying they violated market principles and adopted discriminatory measures against Chinese companies. PVH is the parent company of brands including Tommy Hilfiger and Calvin Klein.
The China’s market regulator said there was an anti-monopoly investigation into the internet giant. The commerce ministry and the customs administration have joined together to announce new export controls on a few rare metals. Announcements about the Google investigation and export controls did not explicitly mention the U.S. tariffs.
Those include 15% tariffs on coal and natural gas, 10% tariffs on crude oil, farm equipment and certain other vehicles. The Chinese counter-tariffs are going to go into effect on February 10.
In a statement, the Chinese finance ministry said the U.S. tariffs “severely violate World Trade Organization (WTO) rules, and not only fail to address [America’s] own problems but also disrupt normal economic and trade cooperation between China and the United States.”