Why the tariffs on Mexico terrorize the automotive industry: NPR

President Trump has threatened to impose tariffs on goods imported from Mexico, starting next week, if Mexico does not take measures to reduce the flow of migrants from Central America to the southern border of the United States. United States.

The proposed rates – which would start at 5% on goods crossing the border and could go up to 25% over time – would be catastrophic for supply chains in the auto industry.

To understand why, consider the wiring harness of a vehicle – the car's nervous system, made up of a complex network of wires that connect electronic components throughout the body of the car.

"It's a huge and heavy wiring harness, which is getting more and more complicated as cars become more electronic," said Sue Helper, an economist at Case Western University. Reserve. "If they're wrong, you may have electrical problems that you will never solve."

All of these wires are carefully arranged in the proper configuration (different for different car models) and grouped together before they are installed in a vehicle. And for cars made in the United States, this group is almost always in Mexico, especially in Juárez. It is a job that takes a lot of time and the labor is cheaper in Mexico.

But this is only part of the picture.

The terminals on the ends of these wires could be built at an Aptiv plant in Warren, Ohio, then shipped to Juárez for assembly in the wiring harness and then returned to the United States for installation in a car.

Small, self-contained rooms have their own wiring harnesses. For example, a safety kit designed to stop a trailing trailer begins with a plastic box manufactured by Hopkins Manufacturing Corp. in Emporia, Kan. It is then shipped to Juárez, where other components are combined and a wiring harness installed. Finally, the finished product returns to the United States to be inserted into a trailer or sold to a consumer.

These goods begin and end in the United States, but would be subject to tariffs under the new policy.

And it is unclear how these rates would be penalized.

Hopkins, the company that manufactures escaped kits and other auto parts and accessories, currently only has to pay duties on the value added to the party while he was in Mexico. But CEO Brad Kraft is concerned that the White House's proposed tariffs may be imposed on the total value of the property, which can be 10 times higher than the value added, each time it crosses the market. border.

If that's the way the rates are charged, then when Hopkins Manufacturing would bring back a loose kit to the United States, the company would actually pay a tariff on the plastic box made in Kansas.

The automotive supply chain has not always involved so many pieces crossing borders so many times. But in recent decades, the system has spread geographically. This included the grouping of yarns formerly made in the United States and transferred to Mexico.

The supply chain could change again in the future. But experts say these rates should not create jobs in the United States. On the other hand, they fear moving Mexico's assembly work to other countries where labor costs are low, which could lead to loss of manpower. more American jobs.

"The wire that goes into these wire bundles, the fabric around these wires, and all the connectors are often made in the United States," said Ann Wilson, Senior Vice President of Government Affairs at Motor & Assets Association. equipment manufacturers. "So, if we are making cable harnesses in Mexico more expensive … and they're relocating these facilities elsewhere, we're going to lose those jobs in the United States."

This could be a long-term concern. For the time being, companies are not ready to make drastic decisions like moving factories, given the deep uncertainty surrounding these rates.

In addition to the fluctuating amount – 5%, gradually increasing up to 25% – it is unclear how long the rates might be in effect; they are related to the progress of immigration, as defined by "the sole discretionary power and judgment of the administration".

"What should we accomplish in the immigration file before tariffs are removed?" Aaron Lowe, Executive Vice President of Regulatory and Government Affairs of the Auto Care Association, who represents companies that provide parts and after-sales services. "It's very, very vague."

Frontera Radiators and Parts, based in El Paso, Texas, just across the border, operates several manufacturing facilities in Mexico. It manufactures truck radiators that are no longer manufactured in the United States. CEO Arnoldo Ventura plans to buy products from competitors in India or Dubai, as tariffs reach 25%. But planning is difficult.

"Instead of waiting for one or two years of planning, we plan each week," says Ventura.

And Kraft of Hopkins Manufacturing said that, in this atmosphere of uncertainty, he could not simply pick up his factory in Juárez and move it.

"There is very little we can do," he says.

There is only one thing, really. Prepare to pay the price – and pass on the highest costs to consumers.