OTTAWA – The Canadian auto parts sector is likely to suffer should the Trump Admin. go ahead with plans to impose escalating duties on Mexican exports to the U.S. to force Mexico to further restrict immigration into America, an industry official says.
With President Donald Trump claiming June 5 that talks with the Mexican government have been insufficiently productive, the U.S. is poised to impose 5% duties on all imports from Mexico effective June 10. Under Trump’s current plans, these tariffs would rise 5% every month, hitting 25% in October, unless he is satisfied Mexico has stopped migrants crossing the U.S.’s southern border.
Flavio Volpe, president of Canada’s Automotive Parts Manufacturers Assn., tells Wards that should this happen, the Canadian parts sector would be vulnerable, given 65 Canada-owned parts makers operate 120 plants in Mexico with 44,000 employees.
The bulk of their business is with Mexico-based assemblers, who could lose significant market share in the U.S. export market once the duties start to bite. Moreover, some of these Canada-owned plants send parts directly to American assemblers. “They will be affected either way,” Volpe says.
He disdains the administration’s action: “Some men like to watch the world burn – there’s no rhyme or reason for this,” Volpe says, adding a big problem is uncertainty in planning ahead. “How do you satisfy (the U.S. government) you are dealing with the threat that the President is claiming exists?” he says. “Is there an objective? Is there a number?”
And should the tariffs reach 25%, Volpe says, “it would undermine very gravely the commercial proposition of manufacturing in Mexico – that it’s a low-cost option.”
The extent to which these Canadian parts makers will lose money depends on the proportion of their operations undertaken by their Mexican factories, which varies, he says.
But these companies have no good options. They cannot just shift production north to avoid the tariffs, because manufacturing in Canada is more expensive, quite apart from the cost of retooling and taking on new staff, Volpe says.