Mexico | The folly of correcting the US auto trade deficit

Summary

The 25% tariff that the United States will impose on automotive vehicles (beginning April 3) and auto parts (no later than May 3) will have an adverse impact on the global automotive industry. This is because automotive companies will have to increase production in the United States, reduce costs or raise prices.

Key points

• Key points:
• For vehicles that comply with USMCA rules, the tariff will apply only to non-US content.
• The US value added in Mexican automotive exports is 18%, so on average the tariff will apply to 82% of the value of the vehicle imported from Mexico.
• The 25% tariff on US automotive imports seeks to correct a trade deficit with Mexico that, in principle, makes no sense to do so.
• First, it is a reflection of vertical integration in global value chains, where Mexico has become a supplier of auto parts (43% of these imports come from Mexico) for the US automotive industry.
• Secondly, vehicles assembled in Mexico or the United States with Mexican content could be destined for other consumer markets outside the United States.

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