Tariffs imposed on vehicles and parts exported from Mexico would increase costs to manufacturers ranging from $650 (U.S.) to $1,145 and those costs would be passed on to consumers, says a new study on the impact of tariffs and border adjustment taxes on the auto sector.
The study, done by Boston Consulting Group for the Motor & Equipment Manufacturers Association (MEMA), a trade organization for U.S. auto parts makers, examined the impact tariffs of 20 per cent and 35 per cent would have on the auto industry if the United States departs NAFTA.
The report was issued one day after Jerry Dias, president of the Canadian union Unifor, called on U.S. and Canadian officials to slap “heavy tariffs” on vehicles to the United States and Canada from Mexico as a means of diverting the flow of invest from Mexico to the more northerly members of NAFTA.
“At some point this will hit the consumer, there’s no way that [auto makers] or suppliers can eat this,” Xavier Mosquet, a senior Boston Group partner and lead author of the study said Wednesday.
Tariffs are also unlikely to lead to a shift in assembly plant investment out of Mexico, Mr. Bosquet said, because the U.S. vehicle market – destination for the vast majority of vehicles assembled in Mexico and in Canada – has hit a plateau.
Auto makers have been operating their factories at more than 100 per cent of capacity, he noted and will scale that back as the market declines from its plateau during the next few years.
“We have enough capacity for the next 10 years,” he told a news conference and webcast in Detroit.
Much of the study examined the impact of border adjustment taxes, which are on the agenda for Republican politicians in the U.S. House and Senate, although President Donald Trump appears to have stepped back from insisting on such taxes in his efforts to repatriate jobs to the United States in the auto sector and manufacturing generally.
Border adjustment taxes “will stunt job growth and hinder the ability of American manufacturers to compete in the global market,” said Steve Handschuh, president of MEMA.
U.S. auto parts makers employ more people than any other sector within manufacturing, Mr. Handschuh said.
The report assessed the impact of border adjustment taxes of 15 per cent and 20 per cent. A 15 per cent tax would add $1,025 on average to the cost of vehicle, while a 20 per cent levy would raise vehicle production costs by $1,800, the study said.
But they would not have the desired impact of causing auto parts makers to shift production back to the United States from Mexico, Mr. Mosquet said.
“The value of the cheaper labour in Mexico is far higher than the cost of the BAT,” he said. “You need a huge BAT to really make it compelling to reshore manufacturing.”
A border adjustment tax in the range of 40 per cent to 50 per cent would be required, he said.
Follow Greg Keenan on Twitter: @gregkeenanglobe
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