How Would Planned Tariffs Against Mexico Affect U.S. Auto Industry?
STEVE INSKEEP, HOST:
While visiting the U.K., the president leaves behind some controversy at home. Just before departing, he defended his threat to impose tariffs on Mexico. The president wants to use those taxes on American consumers to force Mexico to block migrants bound for the U.S.
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PRESIDENT DONALD TRUMP: They have to stop the illegal flow, the flow of drugs, of immigrants, illegal immigrants, people that have not gone through the process. We have people - we want people to come into our country, but they have to come in legally.
INSKEEP: Now members of the president's own party are warning of possible disaster; among them, Louisiana's John Kennedy, who spoke with CBS.
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JOHN KENNEDY: He's been known to play with fire but not live hand grenades. And if he slaps a 25% tariff on Mexico, it's going to tank the American economy.
INSKEEP: Twenty-five percent is where this would be headed. The president threatens tariffs starting at 5% and going up through the summer and into the fall. What's all this mean for a U.S. industry deeply dependent on Mexican labor? We mean the auto industry, which Kristin Dziczek studies. She is with the nonpartisan Center for Automotive Research in Ann Arbor, Mich. Good morning.
KRISTIN DZICZEK: Good morning.
INSKEEP: How do U.S. automakers use Mexico?
DZICZEK: Well, Mexico is a source of parts, imports and exports. So about 40% of our parts imports come from Mexico, and about 40% of the parts we make here in the United States go to Mexico.
INSKEEP: I've seen explanations of this in the past. You might make an auto part in America, right? Then send it to Mexico, and it gets put into a bigger part. Then it gets sent back to America and becomes a part of a - and it might go back and forth many times before it's a car.
DZICZEK: Absolutely, and it may go to Canada in the process of that. The integrated supply chains here in North America are deeply intertwined.
INSKEEP: Now, we know there's, like, GM and Chrysler and Ford, but is this also true for foreign automakers who have U.S. facilities, like - I don't know - Toyota, for example?
DZICZEK: Absolutely. You know, the vehicles that we get from Mexico - about 15% of vehicles sold in 2018 in the United States were sourced from Mexico. They include Chevys and Nissans and Fords and Jeeps and Rams and Toyotas. You know, they're all sourcing vehicles and parts in Mexico.
INSKEEP: So what are the effects if there is now a tariff starting at 5%, but going up conceivably to 25%, on everything that crosses that border from Mexico to the United States?
DZICZEK: Well, just in the auto industry, that 5% tariff would add about $250 to the average price of a vehicle made in the United States. And a vehicle made in Mexico would go up about $1,000, and we'd see a drop in GDP about $7 billion.
INSKEEP: I just want to make...
DZICZEK: When we get up to 25%, it's $1,100 a car made in the United States, $5,400 a car made in Mexico and $34 billion hit to GDP.
INSKEEP: If the tariffs on China are any template for this, we'll then have an argument over who exactly is paying that extra $1,100 for the car. Is it going to be Mexico?
DZICZEK: It's going to be American consumers and American producers. And you know, you bring up China; China tariffs have been ratcheted up as well, and you know, Chinese content is about 3% or 4% percent of vehicles built in the United States. And we're also right now in a period where the Trump administration has promised that there may be tariffs on Japanese and European imports as well. So right now we're just, you know, heading into a storm of tariffs.
INSKEEP: I guess the auto industry was also facing trouble because of the tariffs that the president's put - imposed on steel and aluminum, right?
DZICZEK: Absolutely. And those were just removed on the Mexican and Canadian steel and aluminum imports, and that sort of cleared a hurdle to potentially passing the USMCA, the new NAFTA agreement. And you know, these new Mexican tariffs really throw a wrench in that.
INSKEEP: Well, let's try to make sure we understand the White House's thinking as it's been explained to us here. The White House is hoping just to use these tariffs as lever that Mexico will change its behavior in some undefined way and that that will allow the tariffs to go away or never happen. But the president has made it clear that he likes tariffs, and if you don't like tariffs, you can just build your stuff inside the United States. Is that a realistic option for American auto companies?
DZICZEK: Well, it's not a realistic option in the short term. You know, the auto industry responds to long-term incentives. So when they put a new assembly plant up, it's about $1.6 billion of investment, initially. That plant may stick around for 30, 40, 50 years. And so you want to make sure that, you know, you know the rules of the game are going to be what they are. And this, you know, ever-changing tariff situation is not providing stability that the auto industry needs to make that kind of investment.
INSKEEP: We've been talking with Kristin Dziczek of the Center for Automotive Research, which is located in Ann Arbor Mich. Thanks very much for joining us this morning.
DZICZEK: You're very welcome.
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