Automakers brace as Trump threatens imports from Mexico with tariffs

May 31, 2019

President Donald Trump on Thursday threatened to tax goods imported to the U.S. from Mexico with a 5% tariff beginning June 10 to curb illegal immigration.

Trump announced the policy shift on Twitter, saying Mexico would need to curtail illegal immigrants flowing from Mexico to the U.S. or he would increase the tariffs by 5% every 90 days.

Shares of U.S. automakers with facilities in Mexico tumbled in early morning trading Friday. Trump has long threatened varied tariffs on cars coming into the U.S. without much action so far; the Republican administration has directed ire at German automakers, cars built in China, and cars built in Canada and Mexico, and auto parts sourced from outside the U.S. before. This month, Trump delayed another proposed tariff on auto parts sourced from Europe as his trade war with China escalates.

The new proposed tariff on cars built in Mexico would threaten consumers' pocketbooks in a more direct way. Mexico sends hundreds of thousands of vehicles to the U.S. every year and Mexico is the largest trade partner to the U.S. Tariffs on cars built in Mexico could add thousands to the cost for those cars, and slow auto sales further for 2019.

"Margins are so thin in the U.S. market right now that there's no way that any automaker is not going to pass on these tariffs to their customers," Janet Lewis, an analyst at Macquarie Securities, told Reuters.

Trump's threats came on the same day that his revised North American Free Trade Agreement was submitted to Congress for approval. The proposal trade agreement between Canada and Mexico may be in doubt, although the administration claimed the timing was coincidental. Acting White House Chief of Staff Mick Mulvaney told reporters Thursday that the proposed tariffs were to resolve the administration's perceived border crisis and not trade-related. Mulvaney said the proposed tariffs could be lifted if the government in Mexico negotiated with the U.S. to slow immigration.

Trump's wide-ranging immigration proposals have largely fallen flat. The president campaigned heavily on promises that the U.S. would build a wall on the border with Mexico that the Mexican government would pay for, but those promises never materialized. The president also prompted the longest government shutdown in U.S. history when he insisted on funding from Congress for a border wall. That didn't happen, although the government reopened in February and Trump declared a national emergency to redirect money to build a wall. That national emergency declaration has been held up in courts ever since.

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