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Why Mexico is so important to the American auto industry

Every American automobile factory depends on Mexican parties to build their cars or trucks. That is why President Donald Trump's threat to impose tariffs on Mexican imports of up to 25% in October is shaking the US auto industry. The rates could raise costs in the United States by tens of billions of dollars only in the automotive industry.

Car buyers would probably pay the cost of those rates.

"We believe that vehicle rates will undoubtedly be pbaded on to consumers, which would raise the price of vehicles sold in the US At an average of about $ 1,300," wrote Emmanuel Rosner, automotive badyst at Deutsche Bank. .

The price increase would affect car demand, perhaps by reducing the production of cars in the United States by up to 3 million vehicles a year, a drop of 18% from current levels, Rosner estimates.

If that happened, it would be the biggest blow to the US auto industry. UU Since the Great Recession sent the industry to almost collapse 10 years ago.

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

Mexico is by far the largest foreign source of parts used by the industry. About 16% of all auto parts used by the US badembly plants UU They come from Mexico, according to an estimate from the Automotive Research Center, a leading group of experts in the industry.

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Car manufacturers can not easily switch to other suppliers to avoid using parts from Mexico. Mexican parts suppliers specialize in providing low-cost, labor-intensive components, which make no economic sense to build elsewhere, said Kristin Dziczek, vice president of industry, labor and economics at the center.

For example, 70% of cable harnesses, the collection of cables that transport energy through a vehicle, come from Mexico. Few or any wiring harnesses are made in the United States. Much of the rest of the harnesses arrive at the border between Mexico and the United States from countries in southern Mexico.

"It's one of the first pieces that he installs when he badembles a car," he said in April when Trump threatened to close the border with Mexico completely. Such a move would have closed the entire US auto industry in a week, he estimated.

"You can not build the whole car and hit the wire harness later, this is a big critical part that shuts down the badembly line if it does not."

Finished cars and trucks also enter the United States from Mexico: around 2.7 million cars were imported from Mexico last year, worth $ 52 billion, according to the US Department of Commerce. That's almost a million more cars than those from Japan, the number 2 source of car imports.

A 25% tariff on all imports from Mexico would add about $ 28 billion per year to the cost of vehicles and finished parts.

The US auto industry UU It is already struggling with the increase in costs due to the Trump administration's tariffs on steel and aluminum. Both of them General engines (GM) Y Ford (F) They have estimated that the increase in commodity prices of these tariffs has increased their costs by more than $ 1 billion each.
The entire industry has been trying to reduce costs to free up money for the costly research and development challenge of developing the next generation of electric and self-sufficient cars. That's why GM cited plans to close four factories in the United States this year.
That means that automakers probably will not badume the cost of the fares. Instead, they would be pbaded on to consumers. That could hurt the sales of American cars that cost additional jobs in the United States. Last year, GM warned that a proposal to impose tariffs on all imports of cars and auto parts around the world would lead this and other automakers to cut jobs in the United States.
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The costs would be further increased if Mexico responds by imposing tariffs on US products. That would be a double blow for the automotive industry in the United States, because Mexico is an important market for both its cars and its parts.

Mexico bought 140,600 cars in 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. UU Those cars cost $ 3.3 billion.

More importantly, US parts manufacturers sent another $ 32.5 billion in parts to Mexico, primarily for use in Mexican automotive plants.

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