Mexican Import Tariffs – What’s Their Potential Impact on Trucking?
It’s happened before…the threat (or enactment) by the Trump administration of tariffs on countries where the U.S. does massive amounts of trade.
Whether it is tariffs on Chinese imports or the administration’s steel and aluminum tariffs on NAFTA partners Canada and Mexico pursuant to wrangling a new trade agreement, the financial markets have first sputtered, then adjusted, each time as market analysts evaluate the effect each will have on specific industries and the economy in general.
Now, a new round of tariffs is threatened specifically for Mexican imports. In a tweet on May 30, 2019, the president announced he would implement a 5% tariff on all goods coming in from Mexico, beginning on June 10. A subsequent tweet that same day from the White House stated that unless Mexico worked to stem the tide of illegal immigrants crossing the U.S. southern border, the tariff would increase to 10% on July 1, 15% on Aug. 1, 20% on Sept. 1, and 25% on Oct. 1.
Since that original tweet, the administration has “conditionally” backed off implementation of any tariffs as Mexico has indicated an agreement to pursue some proactive measures to help stem the flow of migrants through their country towards the U.S. border.
Mexican tariffs – the economic reality is that U.S. consumers will pay for any increases.
When tariffs are imposed, it is the consumers in the country imposing tariffs who end up footing the bill for the increased prices tariffs create.
In the auto industry alone, many of our vehicles and components are produced in Mexico. This sector is responsible for massive freight volumes between the U.S. and Mexico. The imposition of tariffs long- term would lead to price increases for vehicles in the U.S. and a resulting drop in sales. By association, freight volumes would take a hit.
Truck and Automobile industries are opposed to the tariffs
Components and parts manufacturers for the truck and automotive industries are strongly against the proposed tariffs, which they believe represent an additional tax on the American consumer while putting jobs and investments in the U.S. at risk.
The length of time tariffs is imposed will determine any long-term impact.
Avery Vise, VP of FTR Transportation Intelligence, is cautiously optimistic about there being any impact such tariffs will have on the North American Trucking industry. His belief is that initially, at least, any price increases brought on by the tariffs will be absorbed by OEMs (Original Equipment Manufacturers). He stated, however, “as we move into fall, and if the tariffs continued to rise to the 25%-point, truck makers would be in a difficult position not to pass those costs along to consumers”. Should that occur, fleet operators will be reevaluating market conditions to determine how badly they need any new trucks.
On a positive note, a lot of the product trucked across the border is produce. This product has to be moved when it is ready, regardless of any tariff. As Avery Vise reminded, “tariffs don’t matter if you’re talking about a perishable good.”
Like everyone else in the trucking industry, DriverSource is hoping any additional tariffs will have minimal impact on the overall flow of commerce between the U.S. and our large trading partner to the south. In the end, only time will tell.
Bill D for DriverSource