Economists are warning President Donald Trump’s idea to slap steep tariffs on Mexican goods could do serious and prolonged damage to the automotive industry.
Trump suggested in a tweet Thursday night that he would begin placing a 5% tariff in June on Mexican products until Mexico does more to stem the tide of illegal immigrants coursing through its border with the U.S. The global nature of American auto production puts the sector at particular risk, economists said.
The president said the potential tariffs would be raised to 10% on July 1 if the country fails to act on immigration issues, and then by an additional 5% each month for the following three months. Tariffs would stay put at 25% until Mexico took action, Trump said in a statement following his tweet.
Economists argue that much of American trade with Mexico revolves around the global supply of auto parts.
“Trade with Mexico is basically all about the supply chain, which essentially is all about cars,” Deutsche Bank Securities chief economist Torsten Slok said in a note Thursday night.
Auto companies inside the U.S. constantly trade parts with their counterparts in Mexico to meet consumer demand, experts said.
“The risk of increased tariffs on global auto trade remains real and would be a significant drag on global GDP if it were to materialize,” ratings agency Fitch’s chief economist Brian Coulton wrote in a report Tuesday.
The impact could be substantial as Mexico sent the U.S. more than $346.5 billion of goods in 2018, meaning that a 5% tariff could mean a $17 billion tax increase on companies, The New York Times noted in a report Thursday addressing Trump’s tariff pitch. This is not the first time Trump has floated such an idea.
The president threatened to place a 25% tariff on cars assembled in Mexico for similar reasons in April. Trump imposed tariffs on $250 billion worth of Chinese goods and threatened to tax nearly all Chinese imports. (RELATED: Trump Plans To Impose Tariff On Mexico To Encourage Them To Stop Illegal Immigrants)
Trump’s tariff push is one of a handful of maneuvers he is using to address what he describes is a national crisis at the border. He started kicking asylum seekers to Mexico where they are required to wait while their cases are adjudicated, which has become known as the Remain in Mexico policy.
Acting Secretary of the Department of Homeland Security (DHS) Kevin McAleenan told reporters Mexico needed to do three things to avoid tariffs: increase security at its Guatemalan border, address its criminal gangs that help migrants and help the U.S. deal with asylum seekers.
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