Trump deals another wildcard to carmakers with Mexican tariffs

Keith Laing
The Detroit News
Cars await shipment at the Port of Veracruz in Mexico.

Washington — President Donald Trump's surprise tweet announcing tariffs on all goods imported from Mexico drew fire from U.S. and foreign automakers who say car buyers ultimately will pay the price. 

Detroit automakers stand to lose billions of dollars under the proposed new tariffs, which Trump tweeted late Thursday would start at 5% on June 10 and rise in increments to 25% by October if Mexico doesn't curtail the flow of immigrants from Central America.

That top tariff rate would total $86.6 billion annually, with $23 billion falling on U.S. autos, according to Deutsche Bank analysts: General Motors Co. could lose $7 billion, Fiat Chrysler Automobiles could lose $5 billion and Ford Motor Co. could lose $3 billion.

U.S. and foreign automakers are objecting strongly, saying punitive tariffs on Mexican-built vehicles and parts will threaten American jobs, disrupt supply chains and raise prices for new-car buyers who ultimately will pay more.

And the move likely will upend the Trump administration's effort to convince Congress to approve a replacement for the North American Free Trade Agreement, for which domestic carmakers have pushed hard. 

"Intertwining difficult trade, tariff and immigration issues creates a Molotov cocktail of policy, and America’s manufacturing workers should not be forced to suffer because of the failure to fix our immigration system," said Jay Timmons, president of the National Association of Manufacturers.

Vehicles and auto parts are by far the biggest export from Mexico to the United States, totaling $93.3 billion last year, according to the U.S. Census Bureau. In 2018, Mexico assembled 2.5 million vehicles that were sold in the U.S., according to Cox Automotive. About 24% of those “Mexican vehicles” sold in the U.S. were domestic makes. The top two brands by Mexican share, GMC and Ram, see about 40% of their retail vehicles assembled on the other side of the border.

Higher auto prices — which would almost certainly be spread across lineups regardless of where they are built — could result in 3 million fewer vehicles sold annually in the U.S., an 18% reduction, Deutsche Bank estimated. 

Trump tweeted Friday morning: "In order not to pay Tariffs, if they start rising, companies will leave Mexico, which has taken 30% of our Auto Industry, and come back home to the USA. Mexico must take back their country from the drug lords and cartels. The Tariff is about stopping drugs as well as illegals!" 

It would take years for carmakers to make such major shifts, the industry counters.

The president's tweets touched off a firestorm of criticism from groups that lobby for automakers in Washington. 

"Any barrier to the flow of commerce across the U.S.-Mexico border will have a cascading effect – harming U.S. consumers, threatening American jobs and investment, and curtailing the economic progress that the administration is working to reignite as efforts are underway to pave the way for ratification of the agreement in Mexico, Canada and the U.S. Congress," the Alliance for Automobile Manufacturers, which represents domestic and foreign automakers, said in a statement.

Matt Blunt, president of the American Automotive Policy Council, which lobbies for Ford, GM and Fiat Chrysler, said the proposed NAFTA replacement known as the United States Mexico Canada Agreement relies on duty-free access to be successful. "The imposition of tariffs against Mexico will undermine its positive impact and would impose significant cost on the U.S. auto industry," he said.  

Detroit carmakers declined to comment, deferring to the lobbying groups in Washington. 

Shares of those companies fell sharply on the news. Fiat Chrysler stocks closed trading Friday down 5.8%, GM dropped 4.3% and Ford dropped 2.3%. The major stock indexes were off about 1.4%.

GM and Fiat Chrysler imported about one-quarter of their U.S.-sold vehicles from Mexico last year, according to LMC Automotive. About 1-in-10 vehicles sold by Ford in the U.S. came from Mexico.

Mexico President Andrés Manuel López Obrador chided Trump for using tariffs as a cudgel in the immigration debate.

"We think that any conflict in bilateral relations should be solved with dialogue, with communication," he said in a Friday press conference. "The use of coercive measures does not lead to anything good." 

Trump's tweets about Mexican tariffs came as a surprise, as his administration has spent the past days attempting to convince lawmakers to approve the NAFTA replacement known as the US-Mexico-Canada Agreement (USMCA). 

U.S. Labor Secretary Alexander Acosta visited Michigan on Wednesday to promote the USMCA. Vice President Mike Pence was in Canada on Thursday to meet Prime Minister Justin Trudeau.

"It certainly doesn't make the environment for the USMCA any easier, and it's certainly a tax on manufacturers and a tax on consumers," said Don Stewart, executive vice president of public affairs for the Association of Global Automakers, which lobbies for foreign-owned automakers in Washington.

The move deals yet another wildcard to carmakers and ratchets up the level of uncertainty, said Jeff Schuster, a Southfield-based industry analyst for LMC Automotive. “That makes is really challenging to run a business, particularly an auto business, because of the big decisions they’re being forced to put on hold or reverse.”

Parts going back and forth across the border as vehicles and systems are built could mean companies get hit by tariffs multiple times, he said.

Charlie Chesbrough, senior economist and senior director of industry insights for Cox Automotive, agreed. "You can have a seat, maybe it's assembled in Texas, then it's shipped over the border for stitching, then it's sent back to the U.S. for the electronics to be put in."  

He said prices for popular trucks like the Chevrolet Silverado and Ram are likely to rise, and he warned of long lines as checkpoints along the U.S.-Mexico border where pickups are normally assumed to comply with NAFTA rules. 

"It's going to have an impact on a lot of big, popular products for Americans that are already at peak prices," he said. "Everyone complains about how expensive pickups are now. Prices are going to go up if the president goes forward with this." 

Detroit News staff writers Nora Naughton and Ian Thibodeau contributed to this report.

(202) 662-8735

Twitter: @Keith_Laing

Top importers from Mexico to U.S. in 2018

  1. General Motors: 725,108 vehicles
  2. Fiat Chrysler: 555,581 vehicles
  3. Renault-Nissan-Mitsubishi: 351,550 vehicles
  4. Volkswagen: 315,704 vehicles
  5. Toyota: 270,920 vehicles
  6. Ford: 245,182 vehicles
  7. Hyundai: 146,061 vehicles
  8. Honda: 119,958 vehicles
  9. Mazda: 28,442 vehicles

Total vehicles imported from Mexico: 2,758,506

Source: LMC Automotive