Detroit automakers face billions in lost profits from tariffs on imports from Mexico announced Thursday by President Donald Trump, an assessment said Friday morning.
Trump tweeted that he would impose escalating tariffs on Mexico “until such time as illegal migrants coming through Mexico, and into our Country,” seeking to pressure Mexico to block migrants fleeing Central America to seek asylum in the United States.
He said a 5% tariff will begin on June 10, but would be removed if Mexico takes “effective actions” to alleviate the “illegal migration crisis,” which will “be determined in our sole discretion and judgment,” Trump said in a separate statement issued by the White House. However, “if the crisis persists” tariffs will increase to 10% on July 1, Trump also said in the statement, and increase monthly until they reach 25%.
“Tariffs will permanently remain at the 25 percent level unless and until Mexico substantially stops the illegal inflow of aliens coming through its territory,” the White House statement said.
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“Automakers may indeed see large financial impact and uncertainty from the tariffs, as all major (automakers) import a considerable portion of the vehicles they sell in the U.S. from Mexico; they also use large content imported from Mexico in the vehicles they produce in the U.S.,” Deutsche Bank said in an industry update.
It said Ford, which makes the pickups that drive its profits in the United States, would be hurt less than General Motors and Fiat Chrysler Automobiles.
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“But U.S. automakers would be worse off than the Japanese and Korean (carmakers), particularly GM and FCA. We believe the high volume/content of full-size pickup trucks manufactured/sources in Mexico and sent to the United States may surprise investors who typically think the only real exposure is passenger cars,” Deutsche Bank said.
The update estimated that if the automakers absorbed the full cost of 25% tariffs, the potential annual profit hit would be $3.3 billion for Ford, $6.3 billion for GM and $4.8 billion for FCA.
Passing the costs on to consumers would raise the price of vehicles almost $2,500 for GM, more than $2,000 for FCA and about $1,500 for Ford, Deutsche Bank said. Counting foreign brands, the average consumer price increase is calculated at $1,300 per vehicle.
It said the tariffs could cut U.S. vehicle sales by 3 million as the industry already faces a moderate downturn.
U.S. automakers deferred comment to the American Automotive Policy Council, which said: “Threatening to increase taxes on products American consumers and manufacturers buy from Mexico will raise costs and quickly threaten the jobs of tens of thousands of Americans here in the United States. Rather than solving problems at our southern border or improving the environment for passage of the president’s recently negotiated USMCA, these new proposed tariffs only increase the uncertainty already faced by American autoworkers and other manufacturers.”
“An integrated North American automotive market has been key to the success of automotive production in the United States. Threatening to increase costs on American manufacturers and consumers will hurt American jobs and raise prices — without solving the problem they were intended to address.”
Just last week, Trump lifted tariffs on steel and aluminum imported from Canada and Mexico, seen as a key step in winning approval in Congress and Canada of the new trade deal meant to update the North American Free Trade Agreement.