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White House's About-Face On Mexican Trade A 'Gut Punch' To U.S. Businesses

Jun 4, 2019
Originally published on June 4, 2019 5:03 pm

Companies with supply chains straddling the U.S. Southern border find themselves in the crosshairs of a new threat after President Trump pledged to raise tariffs on imports from Mexico.

Just last week, business leaders thought that trade disputes with Mexico and Canada were nearly resolved after the Trump administration sought congressional approval of the U.S.-Mexico-Canada Agreement.

"We just did not see this coming," says Ann Wilson, senior vice president of government affairs for the Motor & Equipment Manufacturers Association. "Manufacturers flourish in this country when they have certainty. Now we have a real question about whether that certainty even exists."

Wilson says her industry was relieved last month when the administration lifted tariffs on steel and aluminum from Mexico and Canada. Now, it's all back in flux.

Trump has pledged to raise tariffs on all Mexican products — starting at 5% next week and rising to 25% by October. Wilson says higher tariffs would increase supply costs and hurt car sales, a double whammy. Taken together, uncertainty over trade has been a drag on the U.S. economy.

It's not clear what the latest tariff threats will mean for passage of the president's own trade proposal to replace the North American Free Trade Agreement. Trump is using the threats to try to force Mexico to address illegal migration, but businesses say tariffs would hurt both countries' economies and would be counterproductive. And Mexico might impose its own tariffs on American products.

Auto-parts makers — and many other industries that are closely intertwined with Mexico — are reeling from what seems like a sudden about-face by the Trump administration. Clothing prices already spiked after the administration raised tariffs on imports from China by 25%.

Stephen Lamar, executive vice president of the American Apparel & Footwear Association, says he was on the phone with White House officials discussing the trade deal when he heard about the new tariff threat.

"It was literally at the same time," he says. "It does come as a gut punch in the efforts of those who are trying to get USMCA approved."

In general, Lamar says, tariffs have become too unpredictable. "It is a surreal — [and] in some cases existential — crisis that every day or every couple of days these companies come into work and find that their product may be subject to additional taxes," he says.

Normally, businesses such as clothing manufacturers have months to adapt to tariffs and can optimize their supply chains down to the last button.

David French, senior vice president of government relations at the National Retail Federation, calls this "tariff engineering."

"Where a pocket is located, what kinds of trim are attached, whether it's button or snaps — all of these things might enter into the kinds of decisions that go into tariff engineering," he says.

But when decisions on tariffs turn on a dime, it's hard to plan.

This is the challenge for Chris Miller, whose job involves vetting and buying meats, cheeses, seafood and produce sold at Mom's Organic Market, a grocery chain based in Rockville, Md.

Depending on the season, the produce aisle relies heavily on imports of Mexican avocados, tomatoes, cucumbers and stone fruit.

"When the Mexican season is in for a lot of these items, that is the primary source," Miller says. He says new tariffs on Mexico would drive up prices on imports from other countries, too.

"If the market goes up as a result of the tariffs, then — in my experience — the Canadian market will most likely follow," he says.

This already happened with frozen fish. Prices increased everywhere after the U.S. raised tariffs on imports from China.

Mom's Organic gets a much wider range of goods from Mexico, so Miller says he isn't sure how consumers might react to the new tariffs — or what the impact on his sales might be.

Copyright 2019 NPR. To see more, visit https://www.npr.org.

ARI SHAPIRO, HOST:

Congress is back from recess today. And according to Senate Majority Leader Mitch McConnell, the big topic of discussion at a weekly Senate Republicans meeting was President Trump's plan to raise tariffs on imports from Mexico. McConnell told reporters there's not much support for the move. Just last week, trade disputes with Mexico and Canada seemed to be on the cusp of resolution, so this new tariff threat surprised many U.S. businesses with supply chains that cross the border, as NPR's Yuki Noguchi reports.

YUKI NOGUCHI, BYLINE: Auto parts makers are just one of many industries closely intertwined with Mexico that are reeling from what seems like a sudden about-face by the Trump administration. It's not clear what the latest tariff threats will mean for passage of the president's U.S.-Mexico-Canada Agreement or USMCA. Worse, Mexico might impose its own tariffs on American products.

ANN WILSON: We just did not see this coming.

NOGUCHI: Ann Wilson is senior vice president of government affairs for the Motor & Equipment Manufacturers Association. She says her industry was relieved last month, when the administration lifted tariffs on steel and aluminum from Mexico and Canada. Now it's all back in flux. President Trump has pledged to raise tariffs on all Mexican products starting at 5% next week and going up to 25% by October.

WILSON: Manufacturers flourish in this country when they have certainty. Now we're - we have a real question about whether that certainty even exists.

NOGUCHI: Wilson says higher tariffs would increase supply costs and raise car prices. Taken together, uncertainty about tariffs have been a drag on the economy, including for clothing companies. Stephen Lamar is executive vice president of the American Apparel & Footwear Association. He was on the phone with White House officials about the trade deal when he heard about the new tariff threat.

STEPHEN LAMAR: It does come as a gut punch in the efforts of those who are trying to get USMCA approved.

NOGUCHI: Clothing prices already spiked because of increased tariffs on Chinese imports. Lamar says tariffs have become too unpredictable.

LAMAR: It is a surreal, in some cases, existential crisis that every day or every couple of days, these companies come into work and find that their product may be subject to additional taxes.

NOGUCHI: Normally, businesses have months to adapt. They optimize their supply chains down to the last button. David French, vice president of government relations for the National Retail Federation, calls this tariff engineering.

DAVID FRENCH: Where a pocket is located, what kinds of trim are attached, whether it's button or snaps - all of these things might enter into the kinds of decisions that go into tariff engineering.

NOGUCHI: But when things turn on a dime, it's hard to plan. Take the grocery chain MOM's Organic Market. Chris Miller buys the meats, seafood and produce that go on the grocer's shelves.

CHRIS MILLER: A lot of avocados, tomatoes, veg, cucumbers.

NOGUCHI: Some seasons, the produce aisle relies heavily on Mexican imports.

MILLER: When the Mexican season is in for a lot of these items, that is the primary source.

NOGUCHI: Miller says new tariffs on Mexico would drive prices up on imports from other countries too.

MILLER: Typically, what happens is if the market goes up as a result of the tariffs, then, in my experience, the Canadian market will most likely follow.

NOGUCHI: This already happened with frozen fish. Increased tariffs on Chinese fish raised prices everywhere. And MOM's Organic gets a much wider range of goods from Mexico, so Miller isn't sure how consumers might react and what the effect might be on grocery sales.

Yuki Noguchi, NPR News, Washington. Transcript provided by NPR, Copyright NPR.