Expert: 25% Tariff in North American Autos Can't Last
A former Mexican trade negotiator and deputy foreign affairs minister and two think-tank analysts agreed that it would have made sense for Mexico to capture more manufacturing, leaving China in the wake of President Donald Trump's initial trade war, but they said that if Mexico changes course on its energy policy and effectively tackles cargo theft, it could garner more investment.
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The three were speaking during the Center for Strategic and International Studies' program "Is Nearshoring Dead? Mexico in an Age of Tariffs and Reindustrialization" on July 17.
The former Mexican official, Vanessa Rubio-Márquez, now a professor and associate dean at the London School of Economics, said she thinks USMCA will survive Trump's distrust of imported inputs for domestic manufacturing. She noted that even today, about 75% to 82% of Mexican exports to the U.S. are covered by USMCA (though in the case of completed cars, they only get a partial benefit, paying 25% on the non-U.S. content).
She noted that Mexico needs to make sure the USMCA review is trilateral.
Rubio-Márquez also noted that people tend to discount Mexico's economic strengths. It's the seventh-largest manufacturer (punching above its weight, since it is the 11th most populous). It's the 13th- largest economy in the world, she said.
However, Mexico's economy has not been growing rapidly -- it grows at about 2% most years -- and the tariffs from Trump will make it harder; 35% of Mexico's GDP is based on trade with the U.S.
She said Mexico's approach of consistently negotiating over tariffs and security with the U.S. in formal channels while also talking in back channels is the right one.
"We should also buckle up for a very bumpy ride until we have USMCA 2.0," she added.
Eric Farnsworth, a CSIS senior associate in its Americas Program, said, "A strong, economically viable Mexico is good for the United States, punto," he said, using the word for "period" in Spanish. "We’re going to have to find a way to make this work because there is no alternative."
He suggested that if the antidumping tariffs on tomatoes stay in place, jobs in Mexico will be eliminated, and that some would migrate to the U.S.
Rubio-Marquez said if she was still a Mexican diplomat, she'd be talking to governors, Washington politicians and to the business community to try to convince the U.S. not to trash its economic integration with Mexican manufacturers.
"My pitch would be around the idea that there's nothing wrong with wanting to have more and better employment in your country; nothing wrong with wanting to do more production in your country. Let’s do it together. It doesn’t have to be a zero-sum game."
She said there could be sectoral customs unions between Mexico and the U.S. in pharmaceuticals, semiconductors or other areas.
In response to a question from International Trade Today, Americas Program Fellow Diego Marroquin Bitar said that Mexico won't be returning to how it was before Section 232 auto tariffs action, with duty-free exports of vehicles that met USMCA requirements and 2.5% tariffs on cars that did not.
However, he said he doesn't expect 25% tariffs on cars, light trucks and auto parts to persist through 2028, when Trump leaves office. "Even autoworkers in the U.S. are going to feel the consequences of maintaining that policy," he said.
"Twelve percent might be something the Mexican auto sector could work with," he said. He reminded listeners that in the renegotiation of NAFTA to USMCA, the U.S. compromised on a 75% regional value content after initially asking for 85%.