The need for Mexico and Canada to raise the de minimis threshold so more products are exempt from fees and streamlined through screenings was cited by many groups File Photo

Industry braces for Trump tariffs on Mexico

WEEKEND UPDATE: President Trump announced that he will not be imposing tariffs on Mexico imports.

Editor's note: President Trump announced late Friday that he will not be imposing tariffs on Mexico imports (read more details here) next week, tweeting: "The Tariffs scheduled to be implemented by the U.S. on Monday, against Mexico, are hereby indefinitely suspended. Mexico, in turn, has agreed to take strong measures to stem the tide of Migration through Mexico, and to our Southern Border." The below article was published Friday morning, June 7.

High-level meetings between the U.S. and Mexico to head off tariffs on imported Mexican goods, threatened by President Donald Trump to begin Monday, June 10, have been unsuccessful. 

If talks on Friday do not change anything, the president is expected to take the required formal steps that pave the way for the tariffs to be enacted. However, it remains possible an agreement could be reached over the weekend to end the dispute. 

While the tariffs would start at 5% on June 10, that number could grow to 25% by October if Mexico does not help the U.S. curb migration across the countries’ border, Trump said.

The tariffs could hurt freight transportation companies since Mexico is one of the United States’ biggest trading partners. Supply chains could be adversely affected, especially ones like the automotive industry, which utilizes parts that cross borders often.

How quickly the U.S. Customs and Border Protection could implement the tariffs was still in question. Some of the questions center around how to tax goods manufactured in Mexico with U.S. parts -- and if its software can be updated over the weekend to calculate the proper tariff by Monday.

“It is our responsibility as the most knowledgeable professionals, to express our grave concern, even alarm, that it will be impossible to comply, as the mechanisms for compliance are not available between now and June 10, or even before the increase planned for July 1,” the Pacific Coast Council of Customs Brokers and Freight Forwarders Association wrote in a letter to the Trump administration.

The auto industry imported $59.4 billion in parts from Mexico last year, according to U.S. government trade data. That includes parts used in factories and those sold in auto parts stores and repair shops.

While light truck sales were up in May, heavy-duty truck orders have been sluggish this spring -- mainly because of high demand and limited open building slots. 

Border states such as Texas and manufacturing states such as Michigan and Ohio would be the hardest hit by tariffs, according to an analysis by the U.S. Chamber of Commerce.

The Trump administration is pushing Mexico to sign a "safe third country" agreement that would require Central American migrants to seek asylum in Mexico if they pass through it on the way to the U.S.

On June 5 Trump tweeted: “Immigration discussions at the White House with representatives of Mexico have ended for the day. Progress is being made, but not nearly enough! Border arrests for May are at 133,000 because of Mexico & the Democrats in Congress refusing to budge on immigration reform. Further talks with Mexico will resume tomorrow with the understanding that, if no agreement is reached, Tariffs at the 5% level will begin on Monday, with monthly increases as per schedule. The higher the Tariffs go, the higher the number of companies that will move back to the USA!”

Trade groups representing industries that could be greatly affected by the tariffs have been weighing in with concerns.

The Motor & Equipment Manufacturers Association (MEMA) participated in a panel hosted by the Council of the Americas on June 5 to address the tariffs and the potential impacts on both countries.

“Our members do well when we have regulatory and economic certainty,” said Ann Wilson, MEMA senior vice president of government affairs, said. “Investment requires that certainty. The whole trade policy this administration has developed has put that certainty at risk. We are the number one importer of goods for Mexico, so we are front and center in this debate. By our figures, there’s about $457 million worth of auto parts that cross the border every day.”

The United States-Mexico-Canada Agreement (USMCA) also is in jeopardy because of the tariffs, Wilson noted.

“We have been very involved on a renegotiated-NAFTA,” she said. “We have come out in support of USMCA. It is the certainty that USMCA would provide. Obviously, the president’s decision last week has put all that at risk.”

MEMA says that widely applied tariffs would raise the price of motor vehicle parts, cars, trucks and commercial vehicles for American consumers. The group is also worried about the tariffs' impact on the larger USMCA trade agreement that has been in the works and which MEMA supports.

“This agreement must be in place for our industry to continue to support manufacturing job growth in the U.S. The potential ripple effects of the proposed Mexican tariffs on U.S., North American and global trade efforts could be devastating,” MEMA stated in a release.

In a press release June 6, FTR, a freight transportation forecasting firm, explained the problems the Mexico tariffs could cause.

“With China continuing to be problematic, we know that there had been some shifting of sourcing to Mexico, so potential tariffs on Mexican imports raise important questions,” said Eric Starks, chairman and CEO of FTR. “Either we lose this freight, see increased costs, or both.”

FTR estimates that truckloads into and out of Mexico make up just 1.5% of all U.S. truck loadings, but that share has risen by about 50% since 2009.

“Rail is more exposed than truck even though it has a smaller portion of overall cross-border freight,” Starks said. “Changes in freight would be felt quicker by the rail sector. If we assume a retaliation by Mexico, rail could be hit further because Mexico potentially has other ready sources for some of the most important rail exports to Mexico, such as fuel and grain.”

With trucking, while the share of the overall truck volume dedicated to Mexico is small, a big piece of that is parts for vehicles, computers, and machinery.

“If the trucking freight went away, that in itself would not be a death knell for trucking, but the broader issue is the exponential impact on U.S. manufacturing,” said Starks.

The technology industry has worries as well.

“This is potentially devastating to American small businesses and all the people they employ,” Gary Shapiro, president and CEO of the Consumer Technology Association(CTA), said in a statement. “This is a short-sighted, short-tempered reaction that doesn’t recognize a basic economic fact – tariffs are taxes.” 

The tariffs situation began On May 30 when Trump tweeted:

“On June 10th, the United States will impose a 5% Tariff on all goods coming into our Country from Mexico, until such time as illegal migrants coming through Mexico, and into our Country, STOP. The Tariff will gradually increase until the Illegal Immigration problem is remedied,” Trump wrote. The proposed tariffs will increase by 5% each month until reaching 25%, “unless and until Mexico substantially stops the illegal inflow of aliens coming through its territory.”

Politicians have chimed in both for and against Trump’s plan.

"There is not much support in my conference for tariffs, that's for sure," Senate Majority Leader Mitch McConnell (R-KY) said on June 4.

However, Sen. Marco Rubio (R-FL) supported Trump and the tariffs, tweeting “What alternative do my GOP colleagues have to get #Mexico to secure its southern border, use the Isthmus of Tehuantepec to screen northbound rail cars & vehicles & act on intel we provide on human traffickers?"

 

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