Implications of Donald Trump´s United States trade policy changes on automotive industry settled in Mexico

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Type de publication:

Conference Paper

Source:

Gerpisa colloquium, Paris (2017)

Mots-clés:

Mexico automobile industry, NAFTA, US trade policy

Résumé:

During the presidential campaign, Donald Trump signaled that he would make major changes to United States trade policy as president, including renegotiating major existing agreements like North American Free Trade Agreement (NAFTA) and that he would impose 35% border tax to Mexican goods. From Trump’s point of view, the North American Free Trade Agreement has not provided the expected benefits to his country and it may have shifted high-paying jobs from United States (US) to Mexico.
NAFTA has increased bilateral trade between US and Mexico. The United States is Mexico´s top export market and Mexico is the second largest foreign buyer of US goods. Both economies depend significantly upon one another. About one third of US imports from Mexico are automobiles and their parts and components.
The automotive industry is then one of the major industries that will be highly affected if Trump’s threats are accomplished. This industry has created highly competitive value chains thanks to NAFTA and it is taking advantage of economies of scale and the comparative advantages of each country in North America.
The United States and Mexico do not simply sell finished products to one another, but they rather produce automobiles together. Supply chains run across the United States-Mexico border. So parts and materials often cross the border multiple times during the course of production. There is a very high degree of intra industry trade among these three countries. If a border tax is imposed, the vehicle production costs would considerably increase.
The aim of this work is to analyse the main possible implications of President Donald Trump’s US trade policy changes on the automobile industry settled in Mexico.
In order to reach this objective, we will first present Mexico’s place as a vehicle producer and exporter, and its world´s vehicle market ranking, as well as the United States’. Secondly, import and export data between the United States and Mexico vehicle exchange will be presented. Thirdly, President Donald Trump´s US trade policy proposals will be brought forward and finally, the main possible implications of these proposals on the automobile industry settled in Mexico will be analysed.
Some automakers under pressure from Donald Trump have decided to cancel their plans to build plants in Mexico. These decisions have ruined expected investment flows into the country and employment growth expectations.
If President Trumps impose a border tax to Mexican vehicles, their costs will increase and the flow of vehicles from Mexico into the United States would be limited. Besides vehicles crossing the border will become more expensive in US market and the price rising will be paid by US costumers.
The auto parts and components will become more expensive too. This constrain will not automatically create the replacement manufacturing capacity in the United States; it could take time. Given that automakers, no matter where they are settled, utilize best- cost country production, they could buy them to another country, rather than produce them in the United States, where wages are higher.
President Trump’s measures could have an adverse impact in the United States economy as well than in Mexico.

Copyright© Gerpisa
Concéption Tommaso Pardi
Administration Géry Deffontaines

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