Tuesday September 22nd, 2020 7:05PM

US companies are in line of fire of tariffs aimed at Mexico

By The Associated Press
Related Articles
  Contact Editor

WASHINGTON (AP) — 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%. 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% tariff on all Mexican imports on June 10, just over a week away, and raise those tariffs to 25% by October, unless Mexico stops the flow of Central American migrants into the U.S.

If the tariffs were to take effect, they could eventually raise prices for a new Chevrolet Blazer SUV, a burrito at Chipotle, a new shirt or a Corona beer. A 5% 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 would likely be passed on to U.S. shoppers.

The impact of Trump's latest tariffs, should they be imposed, will fall first on U.S. companies. 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% 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 1994. All U.S.-made cars now include at least some parts from overseas, and 37% 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% Friday.

"For GM, we roughly estimate that a 5% 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, its update to NAFTA.

Sen. Chuck Grassley, R-Iowa, a usual Trump ally and the chairman of the Senate Finance Committee, condemned the president's action as "a misuse of presidential tariff authority" that would burden American consumers and "seriously jeopardize passage of USMCA."

Some industry representatives said the duties would not encourage companies to return production to the U.S., as Trump has said he wants, but actually have the opposite effect: It will discourage them from relocating to the U.S. because they'd have to pay more for imported parts.

"If you can't buy your components here, you're not going to think about coming back here," Mitchell said.

Americans may also see higher prices in grocery stores. The U.S. imports $12 billion of fresh fruits and vegetables from Mexico, including tomatoes, avocados, peppers and lemons.

"This is a tax on healthy diets, plain and simple," said Lance Jungmeyer, president of the Fresh Produce Association of the Americas.

Jungmeyer noted that food imports from Mexico haven't been subject to tariffs for decades, and importers would have to file paperwork with Customs to pay duties. That can 10 days or more to process, potentially leaving many companies unable to import for a time after June 10.

"I've got to educate a whole range of people who haven't paid tariffs on Mexican produce since 1995," Jungmeyer said.

Many U.S. restaurant chains buy tomatoes and other fresh produce from Mexico. Laurie Schalow, an executive for Chipotle Mexican Grill, said the chain has sought to diversify its supplier base and now buys some avocados from Chile and Peru and is less dependent on Mexico. Still, the tariffs would hurt the company, Schalow said.

Trump has already imposed 25% tariffs on $250 billion of goods from China. The additional duties on Mexican imports could weaken the U.S. economy. Growth was already forecast to slip to a roughly 1.5% annual pace in the April-June quarter, down from 3.1% in the first three months of the year.

Gregory Daco, chief U.S. economist at Oxford Economics, estimates that if the full 25% duties on Mexican goods were put in place, U.S. growth next year would be cut by 0.7 percentage point.

The U.S. imports $2.4 billion of clothing and textiles from Mexico. Stephen Lamar, executive vice president of American Apparel and Footwear Association, said companies are already thinking about how to cut costs but will likely have to raise prices because their profit margins are so thin.

Mexico is the eighth-largest supplier of clothing and seventh-largest supplier of footwear to the U.S. market. It's the largest supplier of men's and boy's jeans, accounting for 35% of imports, according to the AAFA.

Shares of Kontoor Brands, which includes Wrangler and Lee, fell nearly 8%, while shares of Levi Strauss dropped 7%. Both companies obtain some of their denim from Mexico.

About 70% of imported beer is from Mexico, up from less than 20% in 1990, according to the National Beer Wholesalers Association. Shares of Constellation Brands, which makes Corona and Modelo beers, among others, fell nearly 6% Friday.

Jeremy Seaver, owner of Tios Mexican Cafe in Ann Arbor, Michigan, said the tariffs would hurt his business. He uses avocados from Mexico, serves Mexican tequila, beer and soda and sells Mexican hot sauces. Even his restaurant's decorations are all from Mexico, he said.

"I'm very concerned," he said. "Five percent (tariff) doesn't sound like a lot, but to a small business like mine, that's a lot."


D'Innocenzio reported from New York. AP Writers Michelle Chapman in New York and Dee-Ann Durbin in Detroit also contributed to this report.


This version of the story corrects that NAFTA was implemented in 1994, not 1995 in paragraph 8.

  • Associated Categories: Associated Press (AP), AP National News, AP Online National News, Top General short headlines, AP Online Headlines - Washington, AP Online Congress News, AP Business, AP Business - Economy
© Copyright 2020
All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without permission.
US companies are in line of fire of tariffs aimed at Mexico
Trump's tariffs aimed at Mexico will likely hit U.S. companies hard
4:14PM ( 4 minutes ago )
Census citizenship question could transform state elections
An undercount isn't the only political peril for adding a citizenship question to the 2020 Census, say groups who worry that it could alter the basis of state legislative maps
4:04PM ( 14 minutes ago )
Union warns Disney World fire department is understaffed
Firefighters for Walt Disney World's private government say they're understaffed, and they say that poses a safety risk
4:03PM ( 15 minutes ago )
Associated Press (AP)
Stocks slump after US expands trade war to Mexico
Stocks are tumbling on Wall Street after the U.S. announced plans to expand its trade war to Mexico, its third-biggest trading partner
3:18PM ( 1 hour ago )
Manning renews effort to be released from Virginia jail
Lawyers for former Army intelligence analyst Chelsea Manning are renewing efforts to get her released from a northern Virginia jail
3:14PM ( 1 hour ago )
Business warns Trump of consequences of new Mexican tariffs
President Donald Trump's threat to slap a 5% tariff on imports from Mexico unless it cracks down on Central American migrants trying to enter the U.S. is being panned by U.S. business
3:13PM ( 1 hour ago )
AP National News
Record flooding causes levee breach in western Arkansas
Officials say a levee along the Arkansas River has breached, prompting an evacuation of a rural area in the western part of the state
1:46PM ( 2 hours ago )
Protesters in Iran, Iraq burn Israel, US flags on 'Quds Day'
Iranians in the capital Tehran set fire to effigies of U.S. President Donald Trump, while in the Iraqi capital, Iran-backed militiamen marched over a large Israeli flag as part of rallies marking Quds, or Jerusalem Day
1:15PM ( 3 hours ago )
Principal: I accidentally plagiarized Ashton Kutcher speech
A West Virginia principal accused of plagiarizing Ashton Kutcher to address his school's graduating class says he didn't mean to use someone else's work
12:53PM ( 3 hours ago )
AP Online National News
IRS proposes update to Form W-4 to increase accuracy
IRS proposes update to W-4 that will improve accuracy and avoid surprises but it may feel different for some employees
2:37PM ( 1 hour ago )
Chicago mayor: Letter being sent to ask alderman to resign
Chicago Mayor Lori Lightfoot says her office will send a letter to longtime Alderman Edward M. Burke asking him to step down amid federal corruption charges
2:19PM ( 1 hour ago )
Ex-Roger Stone aide testifies before federal grand jury
A former aide to Trump confidant Roger Stone testified before a grand jury after a months-long legal battle with special counsel Robert Mueller
2:03PM ( 2 hours ago )
AP Online Headlines - Washington
Trump attacks Mueller, denies that Russia helped him win
President Donald Trump is questioning why special counsel Robert Mueller rejected Trump's insistence that the Russia probe exonerated him.
8:49AM ( 7 hours ago )
Speaker Nancy Pelosi remains cautious on impeachment talk
Speaker Nancy Pelosi still isn't ready to impeach President Donald Trump
6:26AM ( 9 hours ago )
Trump unhappy with special counsel's comments on obstruction
President Donald Trump is questioning why special counsel Robert Mueller rejected Trump's insistence that the Russia probe exonerated him.
3:43AM ( 12 hours ago )
AP Online Congress News
California team loses 2nd sponsor over Ocasio-Cortez video
A second company has cut ties with a California minor league baseball team that played a Memorial Day video that included an image of Democratic Rep. Alexandria Ocasio-Cortez with images of Kim Jong Un and Fidel Castro
1:24PM ( 2 hours ago )
FT: Huawei cuts meetings with US, sends US workers home
The Financial Times is reporting that tech giant Huawei has ordered its employees to cancel technical meetings with American contacts and has sent home numerous U.S. employees working at its Chinese headquarters
11:57AM ( 4 hours ago )
Mexico president: We won't react desperately to Trump threat
Mexico President Andrés Manuel López Obrador says Mexico will not respond to U.S. President Donald Trump's threat of coercive tariffs with desperation, but instead push for dialogue
11:38AM ( 4 hours ago )
AP Business
Stock markets fall sharply on Trump's new Mexico tariffs
Global stocks are down sharply after U.S. President Donald Trump announced more tariffs on imports from Mexico
7:29AM ( 8 hours ago )
Global shares mostly fall on trade worries on Trump tariffs
Global shares are mostly lower as trade worries continue after U.S. President Donald Trump announced additional tariffs on imports from Mexico
4:42AM ( 11 hours ago )
Trump promise of new Mexican tariffs brings protests
President Donald Trump is threatening to slap a 5% tariff on all Mexican imports to pressure the country to do more to crack down on the surge of Central American migrants trying to cross the U.S. border
3:41AM ( 12 hours ago )
AP Business - Economy
Census citizenship question could transform state elections
An undercount isn't the only political peril for adding a citizenship question to the 2020 Census, say groups who worry that it could alter the basis of state legislative maps
4:04PM ( 14 minutes ago )
Union warns Disney World fire department is understaffed
Firefighters for Walt Disney World's private government say they're understaffed, and they say that poses a safety risk
4:03PM ( 15 minutes ago )
Woman identifies herself as alleged R. Kelly victim
A woman has come forward to say publicly that 11 new sex-related felony counts against R. Kelly stem from allegations she made about the R&B singer
3:58PM ( 20 minutes ago )
Judge says Missouri clinic can keep providing abortions
A Missouri judge issued an order Friday ensuring the state's only abortion clinic can continue providing the service, acting just hours before the St. Louis Planned Parenthood facility's license was set to expire
3:56PM ( 22 minutes ago )
Trump tweets in support of LGBT people to mark Pride Month
President Donald Trump is tweeting in support of LGBT people in celebration of LGBT Pride Month
3:55PM ( 23 minutes ago )