The U.S. auto industry, which risked losing access to Mexican suppliers if President Trump closed the southern border, received scant comfort when he walked back the threat in favor of tacking tariffs onto vehicles and parts.
If anything, the president’s vagueness only increased the uncertainty troubling the industry.
Trump had originally said he might shutter the border altogether this week, then shifted to blocking large sections rather than a blanket action. On Thursday, he pivoted again and gave Mexico one year to stop the illegal flow of drugs and migrants to the U.S. illegally or face tariffs on vehicles, followed by a closure.
“We’re doing it to stop people,” he told reporters. “We’ll give them a one-year warning and if the drugs don’t stop or largely stop, we’re going to put tariffs on Mexico and products, in particular cars. If that doesn’t stop the drugs, we close the border.”
Trump specified that a tariff on cars would be 25 percent and said the one-year time frame was flexible. The possibility takes on a heightened menace after a confidential report from the Commerce Department in February expected to pave the way for the duties, a possibility the industry opposes vehemently.
They would be only one component of protectionist policies including double-digit levies on metals and duties on $250 billion of Chinese goods that have spurred warnings from businesses that the White House risks undermining the benefits of GOP-led tax cuts in 2017.
“The prolonged uncertainty about these tariffs freezes investment decisions,” said John Bozzella, president of Global Automakers, and “does incalculable damage to the U.S. auto industry.” His group represents the U.S. divisions of international carmakers, many of which have U.S. plants but rely on parts from warehouses overseas.
American companies, including GM, and foreign manufacturers, such as BMW and Volvo, told the Commerce Department when it began reviewing whether national security grounds existed to impose vehicle tariffs that doing so would increase the prices of parts, trim American exports, and, ultimately, cost the well-paying jobs the president has promised to increase.
“Import tariffs could lead to a smaller GM, a reduced presence at home and abroad,” and thus fewer manufacturing positions, GM told administration officials. The potential risk from the duties grows, the company said, when combined with Trump’s further trade disputes with China and traditional U.S. partners in Europe.
Across the U.S. auto industry, a 25 percent tariff would trim output by 1.5 percent and cost 195,000 workers their jobs over a one-to-three-year period, according to the Auto Alliance, a trade group representing companies behind 70 percent of all U.S. auto sales. Buyers of imported cars would pay an average of $5,800 more, costing American consumers about $45 billion, based on 2017 sales data.
A border closure could be even more devastating.
Nearly all cars assembled in the U.S. rely on parts imported from Mexico or Central America, including seat belts and wiring harnesses, said Kristin Dziczek, a vice president at the Center for Automotive Research.
Without them, auto plants would shut down within a week, leaving 800,000 employees at least temporarily out of work. That’s exponentially more than the 1,700 General Motors employees who lost jobs in Lordstown, Ohio, prompting harsh rebukes from Trump.
“If you don’t have all the parts, you can’t make the cars,” she said. “We’re not going to be making cars for a while, and that ripples through the economy really fast.”
Trump hasn’t provided details on what a shutdown of the U.S.-Mexico border would entail, but a complete closing could disrupt a total of $1.7 billion in trade between the two countries every day, according to the U.S. Chamber of Commerce.
“Even threatening to close the border to legitimate commerce and travel creates a degree of economic uncertainty that risks compromising the very gains in growth and productivity that policies of the Trump administration have helped achieve,” said Neil Bradley, the Chamber’s executive vice president.
Such an action would threaten more than 3.3 million jobs, according to the National Association of Manufacturers.
“Any action that stops commerce at the border would be harmful to the U.S. economy, and in particular, the auto industry,” Matt Blunt, president of the American Automotive Policy Council, said in a statement. “Access to Mexico’s marketplace and North American integration are critical to operations in the U.S.”
The mere possibility had some Trump aides scrambling to contain the fallout before Trump backed down. Chief White House economist Larry Kudlow told CNBC the White House was looking into keeping freight lanes open to protect supply chains.
“The president’s positions on border security are well known. I support them fully,” he said. “The question is, ‘Can we deal with that and not have any economic damage,’ and I think the answer is we can, and people are looking at different options.”
