Implications of the Mexico-U.S. Correspondence on the Auto Parts Supply Chain: Comments on the Mexican-Published Trade Agreement

If Canada and Mexico don’t strike a deal with the U.S. to reduce immigration or stop drugs from entering, President Trump will impose 25% tariffs on Mexico and Canada. Both countries have now negotiated a one-month reprieve from the tariffs.

“I think everybody understands that Mexico, the U.S. and Canada are very integrated,” Irina Im, a senior analyst at RSM Canada, said in December. “It is hard to imagine how this supply chain that has been built out over a long time can be disrupted.”

The CEO of General GM addressed this in a call last week. She said that the company is prepared to take no cost or low cost actions to mitigate the blow of tariffs. (She didn’t specify, but one possibility would be to stockpile some parts ahead of time, or use existing supplier relationships to source as much as possible from the U.S. instead of other countries.)

“We urge all parties to reach a swift resolution in order to provide clarity and stability for the entire U.S. auto industry,” Jennifer Safavian, President and CEO of Autos Drive America, a trade group representing international automakers, said in a statement Saturday. The Alliance for Automotive Innovation, the group representing U.S. auto manufacturing, noted that “seamless” trade in North America supports a $300 billion auto industry.

MEMA, a trade group representing companies that make auto parts and components, wrote in a memo on January 31 that the tariffs “would have severe consequences” for suppliers, workers and consumers alike.

But he also dismissed concerns about the economic impacts if tariffs were imposed, telling reporters on Monday that the U.S. is not reliant on Canada. “We don’t need them to make our cars,” he said.

One challenge for auto suppliers, dealers, and repair shops is that the tariffs are not intended to be permanent and are meant to motivate policy changes. There are long-term tariffs on China which are meant to help U.S. companies compete with Chinese competitors and there are also wide-ranging tariffs that are meant to raise revenue for the federal government.

China is a major source of the precursor chemicals to make fentanyl, and Beijing says it has gone out of its way to help curb the flow of the synthetic opioid into America. After Trump announced his latest tariffs, China warned that they would damage prospects for future cooperation and vowed to launch a case against them in the WTO.

“[T]he underlying economic and political grievances between China and the U.S. run far deeper than those between the U.S. and its neighbours,” he said.

In a note, Evans-Pritchard, head of China economics at the research firm Capital Economics, said there were modest measures taken to retaliate against the US. He estimated that the targeted goods represent, at most, $20 billion worth of annual imports, or around 12% of China’s total imports from the U.S. — a fraction of the more than $450 billion in Chinese goods subject to the 10% U.S. tariff.

China’s commerce ministry also put two U.S. firms – PVH Group and Illumina, Inc. – on its “unreliable entity” list, saying they violated market principles and adopted discriminatory measures against Chinese companies. Tommy Hilfiger is a brand owned by the parent company of Calvin Klein.

The market regulator in China decided to investigate the search engine giant. And the commerce ministry and customs administration jointly announced fresh export controls on a handful of rare metals, including tungsten, indium and molybdenum. Announcements about the Google investigation and export controls did not explicitly mention the U.S. tariffs.

Those include 15% tariffs on American coal and liquefied natural gas and 10% tariffs on crude oil, farm equipment and certain other vehicles. The Chinese counter-tariffs are slated to take effect on Feb. 10.

The Chinese finance ministry said that the U.S. tariffs were againstWTO rules and did not address the country’s own problems.