US President Donald Trump is floating the idea of imposing a 20% import tax on consumer goods brought in from Mexico, in order to pay for the proposed border wall that became such a central part of his presidential campaign.
That could be bad news for automakers; under the North American Free Trade Agreement implemented from 1994, Ford and other carmakers were free to establish manufacturing footprints in Mexico without fear of a tariff forcing retail prices higher. Mexico’s lower production costs allowed companies to save, especially on relatively low-margin offerings. Trump’s suggested rate of 20% is lower than the 35% tax with which he threatened Ford during his campaign, but still enough to significantly impact pricing.
But the US President’s tentative plan to withdraw from NAFTA and implement a Mexico border tax doesn’t seem to be worrying Ford much, according to The Detroit News. During a Thursday call with investors and members of the press, Ford CFO Bob Shanks reportedly said that the tariff “could have an adverse impact [for our competitors] if what we see now as a proposal passes through… [but] for us it looks pretty attractive actually, not having too much impact at all over the next several years in terms of our cash taxes.”
Ford currently builds more of its North American products in the US than any other automaker. The company recently announced the cancellation of a planned $1.6-billion plant in the Mexican state of San Luis Potosi, although the Ford Focus compact will nevertheless shift south of the border to an existing facility in Hermosillo in 2018.
Smaller, less-profitable cars like the Ford Focus and the Fiesta will most likely see their prices increase in the US as a result of the border tax, however. And according to some trade experts, the tariff would undo an arrangement that currently allows Ford and other automakers to sell higher volumes of Mexican-built cars that incorporate plenty of American-made components, adversely affecting US-based suppliers and their workforces.