A carrier trailer, loaded with Toyota cars ready for delivery, waits in line at the border customs checkpoint in Tijuana, Mexico, preparing to cross into the U.S. on May 31, 2019. Photo by Jorge Duenes | REUTERS
In Detroit, shares of major car manufacturers, including General Motors and Stellantis, took a hit on Tuesday. This downturn followed President-elect Donald Trump’s statement threatening to slap a 25% tariff on goods entering the U.S. from Canada and Mexico.
These proposed tariffs could significantly affect the global automotive industry, which has long relied on Mexico, in particular, for cost-effective vehicle production since the North American Free Trade Agreement (NAFTA) was established in 1994. According to UBS, the auto industry constitutes 26% of Mexico-to-U.S. imports, including both cars and parts, and 12% from Canada.
Most leading automakers in the U.S. have operations in Mexico. Notably, GM and Stellantis manufacture lucrative full-size pickup trucks in the country. GM’s shares, which oversees five major assembly plants in these regions projected by Barclays to produce about a million vehicles this year, fell over 8% during midday trading on Tuesday.
Stellantis, Chrysler’s parent company, also faced a decline, slipping more than 5% with its four major plants in Mexico and Canada. Meanwhile, Ford’s shares dipped by 2%, as it has relatively less exposure in these countries. Other manufacturers like Toyota and Honda, which also have a footprint in Mexico, saw their shares decrease by at least 1%.
Trump’s announcement of a 25% tariff on U.S. imports from Canada and Mexico, intended to be imposed through an executive order upon his inauguration on January 20, also included plans to increase tariffs by an additional 10% on all goods from China entering the U.S.
These tariff plans come as a surprise, exceeding what was initially expected from Trump, which was an update to the United States-Mexico-Canada Agreement (USMCA). This new move could potentially dismantle the existing regional free trade agreement.
Responses were limited, with spokespeople from GM and Stellantis declining to comment on the potential tariffs. The American Automotive Policy Council, representing GM, Stellantis, and Ford, remained silent.
Ford, however, responded with an email stating, “Ford is the most committed to American manufacturing among major automakers. We produce the most vehicles here, employ the most U.S. workers, and lead in exports from America to other markets.”
Analysts on Wall Street interpreted Trump’s tariff announcement as a strategic move to gain leverage in any forthcoming negotiations. Carlos Capistran from BofA Securities commented, “Our perspective is that Trump is using tariff threats as a tool to secure favorable economic and political outcomes for America.” He expects Canada and Mexico to show a willingness to negotiate to avoid such tariffs.
Dan Levy from Barclays concurred, suggesting in a Monday night investor note, “We consider this announcement as largely a negotiation tactic, similar to what was seen in 2016, and believe such significant tariffs are unlikely to come into effect.”
Both Trump and his Democratic counterparts argue that the trade deal needs revision, especially regarding potential plans by Chinese automakers like BYD. Throughout his campaign, Trump proposed several tariff measures, including a massive 200% levy on imported vehicles from Mexico. He has also issued threats to impose increased tariffs on European cars, echoing his previous presidential term.
– This report includes contributions from CNBC’s Michael Bloom.
