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Auto suppliers could be headed off a cliff if Trump's tariffs on all Mexican goods go into effect
Auto suppliers could be headed off a cliff if Trump's tariffs on all Mexican goods go into effect
Arjun ReddyJun 4, 2019, 01:52 IST
Sutterstock/Welcomia
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Auto suppliers could encounter serious trouble if the Trump administration follows through on its threat to enact tariffs on all Mexican imports.
The Trump administration has vowed to place tariffs of 5% to 25% on all Mexican goods unless the country "swiftly" takes action to end the border crisis.
US auto suppliers, which import heavily from Mexico, could face a drop in earnings of 50% or more if President Donald Trumps enacts 25% tariffs.
The auto sector is at serious risk should President Donald Trump follow through on his threat to place tariffs on all Mexican imports. In an official White House statement released on Thursday, the Trump administration vowed to place tariffs of up to 25% on all Mexican imports if the country does not take action to stem the flow of migrants into the US.
"Mexico must step up and help solve this problem, the statement said. "We welcome people who come to the United States legally, but we cannot allow our laws to be broken and our borders to be violated. For years, Mexico has not treated us fairly-but we are now asserting our rights as a sovereign Nation."
The tariffs, which are set to go into effect on June 10, will start at 5% and rise to 25% by October unless Mexico takes action to significantly slow the flow of migrants over the US's southern border. The tariffs could put the auto sector at serious risk given the level of Mexican imports utilized in the industry. General Motors and Ford fell sharply after Thursday's announcement.
In addition to the large US car manufacturers, US-based auto suppliers are also at significant risk. While less prominent than the manufacturers, US suppliers also import significantly from Mexico.
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While most suppliers will face less than a 10% earnings drop if tariffs of 5% are enacted, the loss in earnings could top 50% or more for some companies if the full 25% tariffs go into effect.
RBC Capital Markets has estimated the import exposure and effect of the potential tariffs on earnings for the leading auto suppliers, which Markets Insider details below:
