Mexico’s pitch to companies considering the American market was simple. Worried about vulnerable supply chains? Need to reduce your reliance on China? Want an inexpensive spot close to the United States with favorable trade rules? Try Mexico.
Thousands of companies, from family enterprises to powerhouse brands, in Asia, Europe and elsewhere have done just that in recent years. Adidas, Samsung, Honda, Hyundai, Nestle, Volkswagen, Volvo, Lego and more crowd Mexico’s industrial parks.
That parade has grown following pandemic-related supply chain nightmares and increasing political tensions between the United States and China. Canada — a key partner in the North American production network — has also benefited. Last year, Honda announced plans to invest around $11 billion in new electric vehicle and battery production plants in Ontario, alongside its existing facilities. Toyota and Volvo also have plants in Canada.
But now, President Donald Trump’s threat to impose a 25 per cent tariff on all imports from Mexico and Canada as early as Saturday has hit companies like a freak ice storm in summer.
“If you’re an investment officer sitting in a C-suite, how do you decide where you’re going to put money?” asked Mary E Lovely, a senior fellow at the Peterson Institute for International Economics in Washington.
Trump himself signed a new trade pact with Mexico and Canada in 2020 during his first term. Now he is, in effect, ripping up that contract.
It’s disorienting for any business, said Lovely, because trade agreements are intended to create “safe spaces” for long-term investment.
Trump also said he would impose new 10 per cent tariffs on all imports from China starting Saturday.
So far, other Asian as well as European trading partners escaped the first round of presidential trade deadlines.
Yet they still have to brace for the unexpected fallout from tariffs slapped on Mexico and Canada.
Japan alone has more than 1,300 companies operating in Mexico, with more than half of them in the manufacturing sector. Some are automotive suppliers who shifted production from China during Trump’s first term, when he started a trade war with Beijing. In November, Japan’s Toyota said it would invest another $1.45 billion in its two Mexican plants.
More factories are on the way. In October, Taiwanese electronics giant Foxconn announced plans to build a mega-factory in Mexico to produce Nvidia chips.
“It’s ironic, because there was such a response to the first tariffs to restructure supply chains and now you’re basically punishing the countries that benefited from that adjustment,” said Albert Park, chief economist at the Asian Development Bank.
At Honda, an executive said there was a feeling of disbelief when Trump warned of tariffs on goods not just from Mexico, where Honda operates an automotive plant in Celaya, but also from Canada.
Mexico is the largest exporter of automotive parts to the United States. Honda, for instance, produces around 200,000 vehicles in Mexico and ships about 160,000 of those to the United States. American carmakers like General Motors and Ford Motor Co, which have major plants in Mexico and Canada, would be similarly affected by tariffs.
In a news conference in November, Honda’s executive vice president, Shinji Aoyama, said long-term tariffs would be daunting. “Can companies actually stop producing in Mexico?” he asked. “That is really difficult to do.” Mexico is also home to other major manufacturers that make aerospace equipment, electronics, home appliances and more. It is the largest exporter of medical devices to the United States.
Hundreds of Chinese companies, including electronics manufacturer Lenovo and carmaker Chery have also migrated to Mexico in the hopes of sidestepping tariffs. BYD, China’s leading electric vehicle company, has been scouting a production site in the country.
All of these businesses — whether from Asia, Europe or the United States — would also have to contend with any added duties on components they import from China, which remains the go-to source of many of the parts, tools and equipment.
Trump said the most recent tariff threats were intended to help stop the flow of migrants and fentanyl. A longer-term goal, though, is to pressure companies to build more plants not just near US shores but on them.
In 2017, Toyota pledged to invest $10 billion in US manufacturing over five years, shortly after Trump, during his first term, threatened to issue tariffs against the company. Toyota is building a battery-manufacturing facility in North Carolina, and in 2021, it opened a vehicle plant in Alabama that it operates with Mazda.
Trump’s latest threats are once again prompting companies to consider their options. Among them are two South Korean electronics giants.
LG Electronics and Samsung Electronics are both considering moving some of their production of household appliances to the United States, according to local media reports. (Spokespeople for both companies declined to comment.) Mazda, which sends about 70 per cent of the vehicles it makes in Mexico to the United States, said it might shift some of that production to the Alabama plant it jointly runs with Toyota.
For many companies, though, moving a major chunk of production to the United States is unrealistic, said Agathe Demarais, a senior policy fellow at the European Council for Foreign Relations.
Costs are too high. American workers are not willing to accept the low wages that initially drove companies to move to countries like Mexico.
Mazda and Toyota have already struggled to ramp up production at their joint US factory because of a lack of workers.
These days, Demarais said, big corporations may do their best to stay under the radar and wait out Trump’s term. Opening a major production facility takes billions of dollars and a lot of time. — The New York Times.
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