The Trump Administration is threatening to impose tariffs on Mexican imports by up to 25% come October. According to experts, a catastrophe could ensue.
The car business is already suffering somewhat with slowed sales, economical uncertainties and increased costs. President Donald Trump threatened to impose new tariffs on all imported goods in the US of up to 25%. This is very bad news for the US auto industry.
The automobile industry alone imported $59.4 billion in parts from Mexico last year. These parts not only end on our favorite part store’s shelves but more importantly, as vital components in the assembly of new cars. On example of these critical Mexican-built parts are wiring harnesses. 70% of them all are put together in Mexico.
If Trump follows through with his tariff threat, the average price of a vehicle would increase by $1,300. The cost of these tariffs would obviously be passed on to consumers and not absorbed by the companies.
As mentioned, 2019 to drop by a considerable from 2018 which were already down from 2017. This estimated price hike could cut US auto production as much as 3 million vehicles or an 18% drop from current numbers. If we were upset by recent plant closures and layoffs, it won’t get any better in this scenario.
There’s also the small issue of cars and trucks built in Mexico and imported into the US. Last year, 2.7 million of them crossed the border. These tariffs would add about $28 billion to the total cost.
The Trump administration negotiated the US Mexico Canada Agreement (USMCA) is designed to allow most auto parts and vehicles to cross the border in both directions without tariffs. While it is not yet ratified, everyone agrees to this trade deal.
Things in the car business aren’t going too well at the moment. Let’s hope Trump doesn’t follow through with the tariff threat.
Source: CNN Business