By Mike Colias, Bradley Olson and Paul Ziobro
President Trump's plan to impose escalating tariffs on Mexican
imports threatens to increase costs for auto makers, raise prices
at the gas pump for American consumers and disrupt shipments
between the two countries.
The auto industry faces the greatest impact, as more than $125
billion worth of vehicles and car parts were imported from Mexico
last year. Other affected industries include food, energy and
electronics.
General Motors Co. is among the most exposed to fresh tariffs.
GM sold about 663,000 Mexico-built vehicles in the U.S. last year,
or 22% of its domestic sales, according to an estimate from
research firm LMC Automotive. GM shares fell 4.3% Friday.
About 18% of Fiat Chrysler Automobiles NV's U.S. sales were
imported from Mexico last year, including about a quarter of its
profitable Ram pickup trucks. Ford Motor Co.'s Mexican imports
accounted for about 10% of U.S. sales, according to LMC.
The three auto makers declined to comment Friday.
Foreign auto makers that opened Mexican plants to supply their
U.S. dealerships would be hurt by fresh tariffs. For example,
nearly half of Volkswagen AG's U.S. sales last year were imported
from Mexico, according to LMC.
"We believe tariffs of this kind are a tax on the U.S. consumer
and will result in higher prices and also threaten job growth," a
spokesman for Volkswagen said.
Mexico, meanwhile, accounted for 9% of U.S. crude imports last
year, the highest share after Canada and Saudi Arabia. Imports from
the country have grown more vital for refiners of gas in the past
year after the U.S. imposed sanctions on Venezuela and after Canada
curbed production.
"The implication of [the tariffs] would be less gasoline
produced, and prices would increase at the pump," said Sandy
Fielden, director of oil research at Morningstar Inc.
Refiners such as Valero Energy Corp., Phillips 66 and Marathon
Petroleum Corp. would face significant challenges should Mexico
counter with a tariff on their exports of gasoline and distillates
such as diesel fuel, analysts said.
The threatened tariffs would deliver a blow to consumers and
sellers of computers and other electronics.
Many tech manufacturers have established assembly operations in
Mexico in recent years. In 2018, 76% of the desktop personal
computers and servers imported into the U.S. arrived from Mexico,
along with 62% of television sets, according to the Consumer
Technology Association, which represents more than 2,200 tech
firms. The group says Mexico represents the industry's biggest
export market, with $41 billion of U.S. consumer tech goods
exported there in 2017.
Also affected are transportation companies, which have spent
billions of dollars upgrading cross-border infrastructure to ferry
the products imported from Mexico.
Kansas City Southern operates a network of track called the
Nafta Railway that can shuttle goods from Mexican factories and
ocean ports to as far north as Memphis, Tenn., bypassing congested
U.S. West Coast ports. It carries commodities such as corn and U.S.
natural gas south into Mexico.
Kansas City Southern said it "is aware of the President's tweet
yesterday but is not able to estimate what impact such action might
have on the flow of its cross-border freight." Shares of Kansas
City Southern fell 4.5%.
Union Pacific generated $2.5 billion last year in freight
revenue from Mexico, nearly 12% of its overall freight revenue.
Union Pacific is the only railroad that serves all six major rail
gateways to Mexico. It declined to comment.
Farm groups warned the White House against proposed new tariffs
on Mexico, predicting they could trigger retaliatory trade actions
from Mexico and impede exports to one of the top markets for U.S.
crops and meat.
"American pork producers cannot afford retaliatory tariffs from
its largest export market," said David Herring, president of the
National Pork Producers Council.
The trade group estimated that tariffs over the past year from
Mexico and China have so far cost U.S. pork producers $2.5
billion.
Constellation Brands Inc., controlling one of Mexico's
best-known exports, Corona beer, saw its stock decline 5.8%
Friday.
Corona and the company's other beer brands, nearly all of them
imported, account for 75% of Constellation's annual sales, Morgan
Stanley analyst Dara Mohsenian said. The company's Mexican imports
include Pacífico and Modelo Especial beers as well as Casa Noble
tequila.
Constellation has invested in Mexico since taking over U.S.
distribution of Corona and Modelo from Anheuser-Busch InBev in a
$5.3 billion deal in 2013. The company has bought a second brewery
in Mexico and is building a new $1.4 billion brewery. Constellation
didn't respond to requests for comment Friday.
Heineken NV imports Tecate and Dos Equis from Mexico, and those
brands account for 45% of the company's U.S. volume, according to
Bernstein analysts. The profit impact, however, would be less
because those beers are sold at a lower price than the brewer's
European imports.
The proposed tariffs could mean fresh challenges for small
companies, such as Duraflow Industries Inc., a manufacturer of air
filters for home furnaces and kitchen stove range hoods.
About 40% of Duraflow's filters are produced by a contract
manufacturer in Mexico to take advantage of lower labor costs. "If
this is a 5% tariff on the invoices that come across the border,
that's a straight hit to the bottom line," said Duraflow Chief
Executive Mark Sliman, who has seven employees and about $1 million
in annual revenue.
Instead of raising prices, he plans in the short run to add a
tariff surcharge that can be increased, decreased or removed.
--Jennifer Maloney, Sebastian Herrera, Adrienne Roberts, Jacob
Bunge, Jesse Newman and Ruth Simon contributed to this article.
Write to Mike Colias at Mike.Colias@wsj.com, Bradley Olson at
Bradley.Olson@wsj.com and Paul Ziobro at Paul.Ziobro@wsj.com
(END) Dow Jones Newswires
May 31, 2019 20:12 ET (00:12 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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