Tariffs imposed on vehicles and parts exported from Mexico would increasecosts to auto makers that would range from $650 (U.S.) to $1,145 and those costswould be passed on to consumers, says a new study on the impact of tariffs andborder adjustment taxes on the auto sector.
The study, done by Boston Consulting Group for the Motor & EquipmentManufacturers Association (MEMA), a trade organization for U.S. auto-partsmakers, examined the impact tariffs of 20 per cent and 35 per cent would have onthe auto industry if the United States departs the North American free-tradeagreement.
The report was issued one day after Jerry Dias, president of the Canadianunion Unifor,called on U.S. and Canadian officials to slap “heavy tariffs” on vehiclesexported to the United States and Canada from Mexico as a means of diverting theflow of investment 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, asenior Boston Consulting Group partner and lead author of the study, saidWednesday.
Tariffs are also unlikely to lead to a shift in assembly plant investment outof Mexico, Mr. Mosquet 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 ofcapacity, he noted, and will scale that back as the market declines from itsplateau during the next few years.
“We have enough capacity for the next 10 years,” he told a news conferenceand webcast in Detroit.
The report outlines a potential ripple effect from higher costs: Consumerswould react by buying less expensive vehicles and keep their own payments downby passing on some new technologies designed to make driving safer.
“Some of the features to come out will be active safety features,” Mr. Mosquet said. Industry officials at the newsconference pointed to active emergency braking as one new safety feature thatthe industry has agreed to include on vehicles, but so far is not required to beon cars.
Much of the study examined the impact of border adjustment taxes, which areon the agenda for Republican politicians in the U.S. House and Senate, althoughPresident Donald Trump appears to have stepped back from insisting on such taxesin his efforts to repatriate jobs to the United States in the auto sector andmanufacturing generally.
Border adjustment taxes “will stunt job growth and hinder the ability ofAmerican 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 withinmanufacturing, Mr. Handschuhsaid.
The report assessed the impact of border adjustment taxes of 15 per cent and20 per cent. A 15-per-cent tax would add $1,025 on average to the cost of avehicle, 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 tothe United States from Mexico, Mr. Mosquetsaid.
“The value of the cheaper labour in Mexico is far higher than the cost of theBAT,” 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 berequired, he said.
Follow Greg Keenan on Twitter: @gregkeenanglobe
