Mexico is a critical link in the global automotive supply chain. American aftermarket manufacturers, distributors, retailers and repairers – along with numerous international automakers and suppliers – could all end up getting caught in the crossfire if a trade war erupts from President Donald Trump’s statements toward Mexico and its vehicle exports to the United States.
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“Mexico is beating us to a pulp,” said Trump in one comment directed at the nation’s automotive outsourcing presence.
It remains unclear if Trump’s threatened re-do of the North American Free Trade Agreement (NAFTA) and enactment of a “big border tax” would apply only to completed vehicles, or if parts are included as well. But the ramifications and unintended consequences of an escalated tariff and trade tiff could have profound impacts beyond the Mexican OEM manufacturing sector.
Mexico would almost certainly retaliate with tariffs of its own. An unraveling of the social fabric and workforce instability could ensue with the potential for civic unrest driven by economically based fears combined with a sense of sovereignty and wounded national pride. In February thousands of Mexicans took to the streets of 18 cities in protest of Trump’s stated ambitions.
Mexican President Enrique Peña Nieto is not faring well in opinion polls due to a host of domestic criticisms of his policies, but his status could show marked improvement amid nationalist fervor against the U.S. Or the situation could pave the way for an anti-American firebrand to mount a successful bid for the top office.
Notwithstanding widely predicted and dreaded pricing increases throughout the entire automotive segment, Trump’s proposed wall is another point of contention, both economically and culturally, one that could have repercussions far from the border in U.S. warehouses and on factory floors. For example, documented and undocumented workers of Mexican descent send significant portions of their paychecks to relatives back home, amounting to $2 billion a month and accounting for 2.3 percent of Mexico’s overall economy.
Delivering 3.2 percent of the country’s gross domestic product, “the booming auto sector makes Mexico the seventh-largest car producer in the world and the top one in Latin America, overtaking Brazil in 2014,” said analyst Elizabeth Gonzalez at the New York City-based Americas Society/Council of the Americas organization. “It’s also the world’s fourth-biggest vehicle exporter, as well as the sixth-largest auto parts producer, making $85-billion worth in 2015.”