Mexican Tariffs – How big a problem will they be?

President Trump has threatened to impose tariffs on all goods from Mexico starting on June 10th. The tariffs are meant to be “punishment” for allowing asylum seekers to cross into the U.S. from the Mexican border, and begin at 5%, increasing 5% per month until reaching a maximum of 25% in October. In reaction to this second trade war, stock markets have fallen sharply around the globe and in the U.S.

The impact of this threatened trade war would be felt most strongly in the U.S. automotive sector. Automobile manufacturing has a complex supply chain involving parts sourced from the U.S., Canada and Mexico. The U.S. imported $59B in auto parts and 2.7 million cars worth an additional $52B last year from Mexico, according to U.S. government trade statistics. 

Detroit’s Big Three auto manufacturers have already absorbed large cost increases due to Trump’s steel and aluminum tariffs. So, it’s likely that the cost of the latest tariff increases will be passed on to U.S. consumers. Last year General Motors warned the Trump administration that the auto tariffs proposed at that time would result in job losses as price increases would reduce demand.

Prior to today’s announcement there was hope that the USMCA, (the new NAFTA), might be ratified by Congress prior to the Presidential election. The announced unilateral action makes prompt ratification unlikely. 

“If diplomatic solutions or the USMCA do not resolve the threat, we believe that court challenges will be filed to prevent the tariffs from taking place. Until then, importing from or exporting to Mexico will be high risk”, said Lauren Pittelli, Principal of Baker Logistics Consulting. “It’s too early for importers or exporters to make substantial changes to their supply chain. But, we do recommend that our clients minimize their risk by reducing the size of their import purchase orders and shortening the validity period of client quotations”.

“For a medium term solution, we typically recommend use of a Free Trade Zone on the border to avoid duty payment until goods are pulled out of the zone. I checked on the situation in El Paso, and was told by Marcos Lozano, owner of LCS LLC, that at yesterday’s El Paso-Ciudad Juarez Industry Summit, zone operators all reported being maxed out. Processing times have also increased, creating a capacity crunch.” 

Baker Logistics Consulting has launched a new service to provide shippers, importers, exporters, forwarders and other market participants cost-effective international transportation, trade and customs compliance services. Founded and staffed by experienced industry leaders, Baker combines a practical approach to problem solving with independent, objective analysis. 

“We want to provide high quality, actionable information for businesses to stay ahead of the curve” said Pittelli. “With so much going on in international trade today, it’s hard for clients to know how to proceed. Thanks to our unique offering, we know that Baker will be a trusted resource in a world where international trade is more challenging every year. Our ultimate goal is to help companies flourish as they reach more markets”.