Although Trump’s standoff with Mexico ended over the weekend, S.C. manufacturers and state economists are speculating on what could have been as the White House returns to its trade war with China.
The tariffs on Mexico would have levied a 5 percent tax on all Mexican imports and increased each month until reaching 25 percent Oct. 1. The president announced his plans from his Twitter account May 30.
On June 10th, the United States will impose a 5% Tariff on all goods coming into our Country from Mexico, until such time as illegal migrants coming through Mexico, and into our Country, STOP. The Tariff will gradually increase until the Illegal Immigration problem is remedied,..
— Donald J. Trump (@realDonaldTrump) May 30, 2019
While the tariffs were designed to move the Mexican government closer to U.S. efforts on illegal immigration and asylum seekers, industry repercussions in the Palmetto State loomed.
Joey Von Nessen, a research economist at the Darla Moore School of Business, said “the impact of tariffs typically creates a winner and a loser.”
On the positive side, “tariffs can incentivize OEM’s to use more domestic suppliers, leading to job creation in regions where these suppliers are located,” he said. “The downside is tariffs also mean higher production costs for these OEM’s, which raises the final price of their goods and decreases their overall demand.”
For some of South Carolina’s tier-two aerospace and defense suppliers, the tariffs on Mexico would have forced many to begin sourcing domestic components.
Because of stricter quality requirements, Jason Premo, CEO of Acclaim Advanced Manufacturing and SC Aerospace and South Carolina Manufacturing board member, said “all titanium, aluminum and stainless materials are purchased domestically.”
OEM’s sourcing parts from Mexico because of lower labor costs may have considered domestic options as a safer path, he said. “We were already seeing new customer sales opportunities because of the proposed tariffs on Mexico and expected to win and create more jobs in the Upstate as a result.”
With existing tariffs already levied on China, the White House’s strategy with Mexico could have primed U.S. commerce.
Phillip Land, Attorney at Haynsworth Sinkler & Boyd, said tariffs on Mexican imports may have supported an “America First” trade policy.
The tariffs would deter U.S. companies affected by the Chinese tariffs from importing “301” goods from China to Mexican operations, he said.
While many industry pros anticipated the potential for area growth, the South Carolina Democratic Party (SCDP) predicted the tariffs on Mexico would have been “terrible for the people” of this state.
Tim Sullivan, a SCDP spokesperson, pointed to in-state manufacturers like Boeing and BMW saying, “they won’t stick around if their trade is being played with by the president.”
The state’s automakers rely on parts imported from Mexico, and “putting tariffs on this stuff is just going to hurt South Carolina consumers,” he said. “Quite frankly, the Trump administration should be spending more time trying to fix the international trade problems they have already created rather than create new ones.”
Although Mexico is a major trading partner to the U.S., imports from Mexico make up just 1.8 percent of the American economy while products going into Mexico are only at 1.4 percent.
Of equal importance, “this isn’t a trade issue but an immigration one,” Sen. Tim Scott told the Upstate Business Journal last week.
“Congressional Democrats need to stop twiddling their thumbs and come to the table to find solutions on border security,” he said.
Despite sudden tariff threat, global automaker expands to Mexico
Clemson Economist, Bruce Yandle, said the Mexican tariffs were announced on a Thursday evening, giving those affected about seven days to rearrange their production, build new U.S. plants and change their manufacturing processes.
A large part of what is produced in Mexico and shipped to the U.S. are parts of U.S. products like engines, transmissions, components for computers and electrical machinery, he said. Reducing the flow of these intermediary goods to the U.S. reduces the production of final goods for U.S. markets.
And yet, just days after President Trump tweeted his intentions to levy tariffs on all Mexican imports, BMW didn’t hesitate turning the key on a new billion-dollar auto assembly plant in San Luis Potosi to produce the 3 series sedan. While the automaker’s facility in Spartanburg County is independent from its operations in Mexico, BMW does source components from approximately 80 suppliers in the country.
The BMW Group is committed to free trade worldwide but “will not comment on the ongoing trade conflict,” Phil DiIanni said, a spokesperson for BMW North America.
“This company has a global production network and sales market,” he said. “Barrier-free access to markets is key to not only our business model, but for growth, welfare and employment throughout the international economy.”
Trade War with China continues
Yandle cautioned China’s retaliatory tariffs on automobiles manufactured in South Carolina by BMW, Volvo and Honda have already “been hit hard.”
“The argument may concern Chinese trade practices, but the U.S. firms that chose to build plants in China and sell products there did so voluntarily and because they can make more money there,” he said. “Remember, Mr. Trump’s tariffs go far beyond his unhappiness with China and Mexico, he has already imposed tariffs on Canada, France, and other European countries.”
Despite area concerns, Manufacturing.net reported this week Chinese exports edged up in May, surprising markets. Although analysts say the rebound is likely to be short-lived given higher U.S. tariffs and slowing global growth, according to the report.
In addition, the South Carolina Ports Authority reported Tuesday the Inland Port in Greer enjoyed a record May for container volumes with over 200,000 units handled.
Ken Farnaso, U.S. Press Secretary for Sen. Tim Scott, said “in the case of China, the senator believes Trump thinks the Chinese Communist Party wants to steal the future and America must do everything it can to preserve American jobs today, tomorrow and in the decades to come.”