US companies unnerved by tariffs threat

US companies in line of fire of fees aimed at Mexico

Associated Press

WASHINGTON

President Donald Trump’s surprise threat to impose escalating tariffs on Mexican imports jolted industry leaders throughout the U.S. economy Friday, sparked opposition even from usual Trump allies and set the stage for American consumers to face higher prices.

It also sent stock markets tumbling, with the Dow Jones industrial average closing down roughly 355 points, or 1.4 percent. Investors poured money instead into the safety of bonds, sending yields lower and signaling that they fear the economy will slow in the coming months.

Trump vowed Thursday to slap a 5 percent tariff on all Mexican imports June 10, just over a week away, and raise those tariffs to 25 percent by October, unless Mexico stops the flow of Central American migrants into the U.S.

If the tariffs were to take effect, they eventually could raise prices for a new Chevrolet Blazer SUV, a burrito at Chipotle, a new shirt or a Corona beer. A 5 percent duty on the $346.5 billion of goods imported from Mexico translates into $17 billion in tariffs. Some of that higher cost might be paid, at least initially, by U.S. companies. But a significant portion likely would be passed on to U.S. shoppers.

Businesses in many industries have set up tightly linked supply chains with Mexico. Billions of dollars of auto parts, for example, are sent back and forth across the U.S.-Mexico border, in some cases several times, as components are added and integrated into finished cars. Similar networks exist in other industries, from clothing to electronics. The import taxes could quickly translate into much higher costs.

“That’s what’s so concerning about these tariffs,” said John Mitchell, president of IPC, a trade group representing the electronics industry. “It undercuts the region’s ability to leverage each other’s strengths to benefit North American manufacturing.”

Peter Navarro, a top trade adviser to the Trump White House, insisted in an interview on CNBC that the Mexican government and businesses would pay the tariffs. But about 40 percent of imports from Mexico are from U.S.-affiliated companies, meaning there is no Mexican company that would pay. Instead, the tariffs will simply raise costs for U.S. companies – and ultimately for consumers – particularly for parts that cross the border several times, Mitchell said.

The U.S. economy has been integrating with Mexico’s since the implementation of NAFTA in 1995. All U.S.-made cars now include at least some parts from overseas, and 37 percent of those parts are from Mexico.

“Any barrier to the flow of commerce across the U.S.-Mexico border will have a cascading effect – harming U.S. consumers, threatening American jobs and investment, curtailing the economic progress that the administration is working to re-ignite,” said David Schwietert, interim president of the Auto Alliance trade group, which represents U.S. automakers and foreign companies that build cars in the United States, such as BMW and Toyota.

Shares of General Motors Co., which imports more vehicles into the U.S. than any other automaker, tumbled 4.25 percent Friday.

“For GM, we roughly estimate that a 5 percent tariff could be a several-hundred-million dollar annual earnings hit,” said Itay Michaeli of Citi Investment Research.

The new tariffs came as a surprise for many companies because the Trump administration had just renewed its push to win congressional approval for the U.S.-Mexico-Canada trade agreement.