U.S. President Donald Trump’s recent threat to impose a 5 per cent tariff on Mexico is yet another red flag for Canadians to remain watchful, if not wary of political tensions south of the border.
Those tariffs, which would have started at 5 per cent and gradually increased by the same percentage each month until it reached a maximum of 25 per cent, would have had a ripple effect on Canada — including its automotive sector.
Trump’s reasoning for threatening to impose a tariff on Mexico is not related to trade this time — but to immigration, as he seeks to stem the flow of illegal migrants making their way into North America in an effort to flee violence in South America.
“On June 10th, the United States will impose a 5 per cent Tariff on all goods coming into our Country from Mexico, until such time as illegal migrants coming through Mexico, and into our Country, STOP,” said Trump in a tweet. “The Tariff will gradually increase until the Illegal Immigration problem is remedied,..”
The tariffs were averted as U.S. and Mexico were able to reach a deal to help reduce the number of illegal migrants making their way into the U.S., which was reportedly said to have reached record levels, based on The Washington Times.
But Trump’s threat on “all goods” exported from Mexico and imported into the U.S. brings to mind questions about how the auto side letter protects both Mexico and Canada. That side letter, achieved with the new NAFTA deal, is already in effect and is meant to shield the countries’ auto sectors, in large part, from the Section 232 tariffs Trump imposed last year through a national security loophole.
“The 5 per cent tariff, from what I can see in terms of automotive, would have affected Mexico at the manufacturing level — vehicles that are manufactured in Mexico and exported to the U.S.,” said CADA Economist Oumar Dicko, in an interview with Canadian auto dealer.
He said it wasn’t clear for Mexico how the side letter would have protected them, or not, but for Canada — it’s manufacturing sector is protected, and Canada doesn’t have a tariff with Mexico.
“For the vehicles that are manufactured in Mexico and exported to Canada, it (the tariff) wouldn’t affect them,” said Dicko. “It’s only the vehicles being manufacturers in Mexico and exported into the U.S. that there would be impacted. For Canada, we are still sheltered from it, but we will have to see where the situation goes.”
Even so, under a tariffed environment there would be a ripple effect on Canada, according to Canadian Black Book.
“For the Canadian market the effects are more complex. If there are parts made in the U.S. with sub-components from Mexico and then shipped to Canada for assembly, it would affect costs and prices of products produced here,” said CBB in a news release. “Again, the higher prices would generally mean lower demand production rates domestically, which could selectively slow the production of some affected products.”
The issue would also extend to used vehicles in Canada.
Another impact would be on the ratification of the new NAFTA deal, as Mexico may not be inclined to ratify the agreement as quickly.
Dicko said this is something we will have to monitor very closely because the process for ratification has already started in Canada. The deal was introduced to Parliament a few days after the steel and aluminum tariffs were lifted, and the government is trying to move ahead with getting the bill passed.
“Last I heard, the government is also looking to hold off on that bill until Mexico and the U.S. are very clear on where they stand with the ratification of the deal,” said Dicko.
Trump has reportedly threatened, again, to impose tariffs on all Mexican goods if the deal they reached to curb the illegal immigration issue does not successfully make its way through Mexico’s parliament.
