How the Mexico Tariffs Can Affect the Auto Industry in the US

If video / audio is more your style, check out our video here:

June 10, 2019

It has been a busy Monday with regards to this story and we have some updates.

First of all, the White House has announced that the tariffs that were threatened against Mexico are off, for now. The key is to recognize that this is not off of the table. If at anytime President trump feels Mexico is not doing enough, or if after 6 months he is not seeing enough progress, President Trump has said that he would consider reintroducing them. To learn more about how these tariffs would effect the auto industry in particular, watch the above video or read below.

June 9, 2019

Tomorrow, June 10, 2019, the United States is set to impose a 5% tariff on goods coming across the boarder from Mexico. As an automotive-based media company, we are obviously concerned and interested in the affect that these tariffs will have on the automotive industry here in the United States. In our video covering this topic, and in this post, we have an in-depth explanation of the tariff, why they are unique in this situation, and how they might actually negatively affect American businesses and consumers.

First off, what is a tariff? In its most basic form, a tariff is a tax on an imported good. Tariffs serve many purposes; they can help promote growth of production within one’s country, they can protect a government from missing out a tax revenue from companies, and they can help balance and control trade across the world. As we have seen and heard lately, tariffs can also be used to influence other countries. Tariffs have been used in this way for a very long time, however, they seem to be a favorite tool of President Donald Trump; leading to a more frequent use and consequently more media coverage….making them an everyday term in American households.

What is somewhat unique about this tariff situation with Mexico is the Presidents use of tariffs to influence another country on a political issue rather than an economic one. A more traditional use of tariffs is for economic issues, like we are seeing with China currently. This distinction is important because it makes it much harder to predict how Mexico will react, and when the tariff might end….if ever.

So the plan for these tariffs, as laid out by President Trump, state that a 5% tariff will go into effect on June 10. This will increase by another 5% on July first, continuing to grow by 5% every month until it reaches 25% or a deal is made. This is a very bold, and powerful move by the president that certainly got the attention of Mexico and all of the country, including the stock market which moved sharply lower when first announced. Towards the later half of last week, Mexico sent a delegation to Washington D.C. to begin discussions around this topic of immigration in hopes of coming to a solution. Mexican officials expressed that there was progress in these meetings in press conferences. However, no deal has been met yet, and the President, holding true to his word, is continuing on with the tariff.

The good news for the American consumer is that you will likely not see any impact in the price of cars from this first round of tariffs. Auto manufacturers are planning to eat this increase in cost. The Center for Automotive Research (CAR) estimates that cars manufactured in Mexico and then imported to the US will see a cost increase of about $1,100 dollars on an average car. If the tariffs continue all the way up to 25% over the course of this summer, this cost could skyrocket to an average cost increase of over $5,000.

Auto manufacturers can only absorb so much of this cost before it starts to impact profitability and upset shareholders. These companies have already been hit hard in the past few months in the market with all of these trade worries and new tariffs so their profitability is high on their list of concerns. Right now, there seems to be an assumption by the manufacturers that this tariff will be short lived and that Mexico and the United States will be able to come to an agreement - Hence why they are eating the initial increase in price. However, if we do see a prolonged negotiation with Mexico, they will have no choice but to pass along this added cost to consumers.

New cars aren’t the only category being affected by these tariffs either. If you need to get your car repaired, you might want to act quickly on that because when these tariffs hit, auto repair prices will jump. Just like with new cars, many of the parts used to repair your car will come from Mexico and with auto repair, the margins are not high enough to absorb this extra cost…so you can expect this added expense to be transferred straight to the consumer.

So what can you do?

Unfortunately, not a lot. The best tip I have for you is to be smart about your timing. If you are entering the market for a new vehicle now, you should be fine. But it you are looking to buy in a months time and this tariff situation has not been renegotiated, you may want to explore options of waiting if at all possible. The best thing you can do is stay informed on the situation.

To help you stay up to date on this topic, this post will be updated as new developments happen. You can also subscribe to our channel on youtube or follow us on instagram to stay current! Finally, consider signing up to our mailing list so you can be easily notified of additions to this post.

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