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Every American car plant depends on Mexican parts to build cars or trucks. That 's why President Donald Trump' s threat of imposing tariffs of up to 25% on Mexican imports by October is shaking the US auto industry. Rates could raise US costs by several tens of billions of dollars in the auto sector alone.
Car buyers would probably pay the cost of these rates.
"We believe that customs duties on vehicles would undoubtedly be passed on to consumers, which would increase the price of vehicles sold in the United States by about $ 1,300 on average," writes Emmanuel Rosner, Deutsche Bank Automotive Analyst.
The rise in prices would hurt demand for cars, and even US car production by about 3 million vehicles a year, a drop of 18 percent from current levels, says Rosner.
If that happened, it would be the biggest blow to the US auto industry since the Great Recession rushed it to collapse 10 years ago.
The industry imported $ 59.4 billion worth of coins from Mexico last year, according to US government statistics. This includes parts used in factories and those sold in auto parts stores and repair shops.
Mexico is by far the largest foreign source of coins used by the industry. About 16% of all auto parts used by US assembly plants come from Mexico, according to an estimate by the Center for Automotive Research, a leading think-tank in the industry.
Car manufacturers can not easily turn to other suppliers to avoid using parts from Mexico. Mexican spares suppliers specialize in supplying low-cost, labor-intensive components, which is not cost-effective to build elsewhere, said Kristin Dziczek, vice president of the company. industry, labor and the economy at the center.
For example, 70% of the wire bundles, the collection of wires that carry energy in a vehicle, come from Mexico. In the United States, there are few or no bundles of cables. Much of the rest of the harness arrives at the US-Mexico border from countries in southern Mexico.
"It's one of the first pieces you install when you ride a car," she said in April when Trump threatened to close the border with Mexico completely. Such an initiative would have shut down the entire US auto industry in a week, she said.
"You can not build the entire car and insert the wiring harness later – it's an essential part that stops the assembly line if you do not have it."
Finished cars and trucks also come from Mexico to the United States: about 2.7 million cars were imported from Mexico last year, worth $ 52 billion, according to the US Department of Commerce. That's nearly one million cars more than Japan, the second largest source of car imports.
A tariff of 25% on all imports from Mexico would add about $ 28 billion a year to the cost of vehicles and finished parts.
The US auto industry is already grappling with additional costs because of Trump 's administration tariffs on steel and aluminum. Both General Motors (GM) and Ford (F) estimated that rising commodity prices as a result of these tariffs had increased their costs by more than $ 1 billion each.
The entire industry has been trying to cut costs to free up money for the expensive research and development challenge of developing the next generation of electric and autonomous cars. That's why GM cited plans to close four US plants this year.
This means that automakers would not likely assume the cost of tariffs. Instead, they would pass them on to consumers. This could hurt American car sales, which would result in additional jobs in the United States. Last year, GM warned that a proposal to put tariffs on all car and auto parts imports worldwide would lead it, as well as other automakers, to delete jobs in the United States.
The costs would increase further if Mexico reacted by imposing its own tariffs on US products. This would be a double blow for the US auto industry because Mexico is an important market for its cars and parts.
Mexico bought 140,600 cars from the United States last year, about 8% of all car exports, making it the fourth largest market behind Canada, China, and Germany , according to the US Department of Commerce. These cars cost $ 3.3 billion.
More importantly, US parts manufacturers shipped $ 32.5 billion worth of additional parts to Mexico, mainly for use in Mexican auto plants.
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