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Trump’s Mexico Tariffs Risk Pricing Some Americans Out of Buying a Car

About 2.6 million vehicles were shipped north of the border in 2018, valued at more than $93 billion

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    Trump’s Mexico Tariffs Risk Pricing Some Americans Out of Buying a Car
    Carl Court/Getty Images
    In this January 13, 2015, file photo, cars are prepared for distribution at a Ford factory in Dagenham, England.

    What to Know

    • About 2.6 million vehicles were shipped from Mexico to the U.S. in 2018, almost double the 1.33 million vehicles imported in 2011.

    • Mexico vehicle imports totaled more than $93 billion last year.

    • Mexico vehicle imports last year totaled about 15% of the total of 17.30 million vehicles sold in the states last year.

    Honda’s head of American operations, Henio Arcangeli, worries that President Donald Trump’s latest proposal to slap a 5% tariff on auto imports from Mexico will price some Americans out of cars just when auto prices are near record highs.

    “The tariffs will be a problem for us and everyone else in the industry,” Arcangeli said in an interview. Like many U.S. and foreign automakers, Honda imports much of its U.S.-bound autos from its manufacturing plants in Mexico. It imported 109,989 of its Fit and HR-V models from Mexico last year, a more than 600% jump since 2011, according to Mexico’s Instituto Nacional de Estadística y Geografía, or INEGI.

    The North American Free Trade Agreement opened the borders between the U.S., Mexico and Canada in the early 1990s and paved the way for an international auto manufacturing industry between the three nations. Mexico is now one of the largest auto manufacturing countries in the world, and autos and auto parts are the largest single export, by value, to the United States.

    About 2.6 million vehicles were shipped north of the border in 2018, valued at more than $93 billion, up from just 1.33 million vehicles in 2011, according to INEGI data. That’s about 15% of the total of 17.30 million vehicles sold in the states last year.

    Trump’s using the tariffs to pressure the Mexican government to stem illegal immigration over the southern border. He’s threatened to levy tariffs at 5% come June 10 and “will gradually increase until the Illegal Immigration problem is remedied, at which time the Tariffs will be removed,” Trump said in a tweet. By October 1, barring a resolution, the tariffs will jump to 25% which, for some Mexican-made cars and light trucks could translate into more than $10,000 per vehicle, he said.

    “Here’s what you have to remember. Tariff equals tax hike,” said Paul Ingrassia, a Pulitzer Prize-winning automotive journalist now working with the Revs Institute, said on CNBC Friday.

    But even vehicles assembled in the U.S. -- including those bearing foreign brand names like Toyota, Honda, Mercedes-Benz and Hyundai -- would be hit by the tariffs if a resolution isn’t found before they go into effect in less than two weeks. American assembly plants make extensive use of a significant number of Mexican-made parts and components, such as wiring harnesses, that are low value or which have high labor content. About 70% of the wiring harnesses used in the U.S. come from Mexico.

    Those auto parts and components bring the total to $99.6 billion, according to U.S. Census Bureau data.

    Even at 5%, the added tariff “potentially could scrub the deal, especially for marginal buyers,” said Joe Phillippi, head of AutoTrends Consulting, noting they could add about $1,500 to the cost of a typical Mexican-made Ram 1500 or Chevrolet Silverado pickup. That would jump fivefold if the tariffs aren’t removed by October. With some pickups and other Mexican imports topping $50,000 apiece, the tariffs could add on $10,000 or more — or force manufacturers to swallow a large share of their profit margins.

    The average transaction price — what customers actually pay after factoring in options and incentives — will reach a near-record $33,457 for May, LMC Automotive forecast, a 4% year-over-year increase.

    “The auto industry gets hammered” if the tariffs are enacted, with the situation getting worse each month as they are increased, Phillippi said.

    It is possible that the auto industry may try to absorb some of the added costs, as has been the case with some of the Trump tariffs on imported aluminum and steel, but that would have a harsh impact on an industry facing a weakening market. Sales were off by 2.8% during the first four months of this year and are expected to be down another 2.1% when May numbers are released next week, according to a forecast by LMC Automotive.

    Things get particularly complicated on the component side. It has become commonplace since NAFTA went into effect in 1994 for parts to move back across what has become a largely invisible border. Some may cross from Mexico to the U.S. and back again as often as seven times, said Steve Kinkade, a spokesman for Honda.

    The Japanese automaker imported 107,989 vehicles from Mexico in 2018, a 611% increase since 2011. Its numbers pale when compared to General Motors, which led the industry by importing 666,765 vehicles from Mexico last year, a 109.6% increase since 2011. Next in line was Fiat Chrysler Automobiles, at 504,793 vehicles, a 206.2% increase during the same period, according to INEGI data.

    A growing list of automakers now produce vehicles in Mexico, taking advantage of both cheap labor and that country’s extensive array of free trade agreements. Fully a third of the vehicles Nissan sold in the U.S. last year came from Mexico, while Audi’s new plant near Puebla serves as the sole global source of its latest-generation Q5 sport-utility vehicle.

    Arcangeli sidestepped direct criticism of the president’s directive, saying only that Honda is “very hopeful” that a resolution will be found quickly, allowing a return to “business as usual.” Most of the other automakers CNBC approached declined to directly comment, referring instead to a statement by the trade group the Alliance of Automobile Manufacturers.

    “Our position on tariffs remains unchanged: they are a tax on our customers, which means they’re harmful to our nation’s economy and the millions of American jobs that depend on cross-border trade,” said a statement attributed to interim president and CEO Dave Schwietert.

    In a Congress that has been polarized since the 2016 elections, even some Republicans took aim at the tariff plan on Friday. U.S. Senate Finance Committee Chairman Chuck Grassley of Iowa said “trade policy and border security are separate issues. This is a misuse of presidential tariff authority and counter to congressional intent.”

    The president’s announcement comes two weeks after he chose to delay by up to six months the possibility of enacting tariffs of up to 25% on European-made autos and auto parts following a Commerce Department study that determined they pose a threat to national security. Chinese-made autos and auto parts currently face tariffs due to the U.S.-China trade dispute.

    CNBC’s Emma Newburger, Michelle Fox, Phil LeBeau and Meghan Reeder contributed to this article. 

    This story first appeared on CNBC.com. More from CNBC: