How Tariffs Will Impact Your Mexican Operation?
On May 31, the US Department of Commerce announced that tariffs on steel and aluminum were no longer valid for Mexico, Canada and the European Union. Hence, these countries became subject to a 25% and 10% tax on tariffs for these materials effective June 1. The tariffs could complicate the govermental efforts to renegotiate NAFTA with Canada and Mexico. The tariffs for Canada and Mexico are the result of not having a date to get to a conclusion on NAFTA.
Mexico is the fourth main exporter of steel to the US. Materials are primarily used to support the automotive and construction industries. The automotive sector expects that tariffs imposed on steel and aluminum will be temporary. Longer term tariffs will result in consumers paying higher auto costs. This situation impacts the entire chain of production, from parts manufacturers, raw material suppliers and, ultimately, OEMs.
In addition to the higher cost on automobiles, the manufacturing of some electronic devices will also be reflected in consumer pricing. Tariffs could considerably increase the cost of basic supplies for the construction sector, for example, not just steel and aluminum, but oil, cables, beams, pipelines 30 other products. It is estimated that not only the cost will be affected, but it will be necessary to adjust the growth rates for this sector, as well as jobs creation.
It is not an overreach to say that tariffs could cause economic damage as price escalation is likely to weigh on the business community and may derail future economic investments. In macroeconomic terms, Mexico steel exports represent just 1.6% of the total market, and aluminum just 0.3%, however, the impact of imposing barriers between the three countries could lead the way to open other new and more important type of commercial barriers.