How would Mexico import tax impact local companies?

HARLINGEN — For manufacturers who cherish precision, just which companies would pay President Donald Trump’s 5-percent tariff and on which products from Mexico had everybody a little up in the air.

The uncertainty was over Trump’s plan to begin imposing tariffs on Mexico on Monday if that country didn’t take steps to reduce the flow of Central American migrants into the United States.

Then Friday night, Trump announced the U.S. and Mexico had reached an agreement to avert the tariffs.

This past week, local manufacturers with business ties that cross back-and-forth to Mexico talked about how those tariffs would affect them.

Dave Blackburn is general manager for Fox Valley Molding Inc., a Harlingen company that specializes in thermosets, a polymer hardened by curing from a soft solid or a liquid. Fox Valley supplies these for mainly electrical uses to a dozen or so companies that manufacture breakers, shop vacs and automotive parts.

“Right now, I haven’t seen any orders … to back off,” he said at his facility last week. “What I’m afraid of is it’s going to affect our customers who are all in Mexico but they ship to the states.

“Are the people in the states going to find somebody else to buy from?” he asked. “I don’t know that, I haven’t seen that. But it has impacted us as to where we’re going to buy our raw materials from.”

At nearby International Assembly Inc., Gerardo Moreno has the title of “Mexican classifier” for a company that owns a maquiladora, or manufacturing plant, in Mexico.

Would tariffs hit your business?

“Actually, not really,” he said. “I know there’s a 5-percent tariff they’re going to add but I’m not sure if that’s going to affect our maquiladora.

“Our products are built in Mexico and we export it to different U.S. customers,” he added. “In Mexico, we build medical equipment and we make plastic molded parts for automotive.”

Types of products

Norwood Fedie is president of the Harlingen Manufacturer’s Association. He thinks the decision on which products tariffs would hit would depend on whether the item being exported out of Mexico is fully finished or merely a component part of another product.

“I’m thinking like Ford, Chrysler, GM, Toyota, Honda, Nissan and there are a couple other ones, but their products that are exported back to the U.S. as fully finished, ready-to-go-to-the-consumer products, I would think would be subject to this tariff,” he said. “But all the products that are value-added components of final products that are shipped back and forth across the border, to my knowledge … I don’t think they would be subject to the 5-percent tariff.

Labor costs

So why pay for a warehouse or manufacturing plant in Harlingen when you own another facility just a few miles away across the border in Matamoros or Reynosa?

The answer is, like most things in business, a bottom-line issue — Mexico offers hugely discounted labor costs.

Last year, according to the U.S. Bureau of Labor Statistics, wages for manufacturing work in China were estimated at $5.51 per hour. In Mexico, they were $4.45 an hour, and in Vietnam $2.73 per hour.

All of these pay rates far lower than a company would pay here in the United States, where the average goods-producing wage for a U.S. worker is $23.17 an hour.

“So if you had a company in the U.S. that was, say, making widgets, and they had some operations in the manufacturing that were hands-on, labor intensive,” Fedie said.

“They could take advantage of cost savings by farming that out to a maquiladora in Mexico that they had an ownership interest in, get the hands-on labor work done relatively cheaply, then the value-added component would be shipped back to add to the final assembly,” he added.

But who would pay and on what parts, remains unknown.

Economic impacts

Mexico is the United States’ third-largest trade partner. In 2018, $346.5 billion in goods were imported from Mexico, according to the U.S. Trade Representative.

So these tariffs would essentially be import penalties that some U.S. companies would have to pay.

The U.S. imposed tariffs on all steel and aluminum imports in March, and Mexico retaliated last week with tariffs of its own, targeting U.S. apples, cheeses, cranberries, pork and potatoes, among other items.

The products Mexico has imposed tariffs upon appear to have been chosen with politics at least partly in mind, targeting states and regions where political leaders are closely tied to the Trump administration.

Kentucky, for example, where bourbon is produced, is the home state of Senate Majority Leader Mitch McConnell. Mexico has imposed a 20-percent tariff on Kentucky’s finest.

Despite the lack of clarity on just which products shipped from Mexico would be hit with a tariff, everybody agrees on the final outcome. In the end, they say, it would be consumers who would wind up paying the extra cost.

Mexico retaliates

Mexico’s tariffs on U.S. products went into effect June 5

Apples: 20 percent

Bourbon: 25 percent

Cheese, fresh (including cottage cheese): 25 percent

Cheese, including Parmigiano Reggiano, Edam, Fontina, Gouda, Havarti, Taleggio: 20 percent

Cheese, grated or powdered: 20 percent

Cranberries: 20 percent

Pork (including legs, shoulders, ham): 20 percent

Potatoes: 20 percent

So what is a tariff, anyway?

A tariff is a “tax” paid by companies which import goods, and is assessed even when a U.S. company brings in a product built at its own factories overseas, or just across the border, like many Harlingen companies. These companies either absorb the extra cost of paying the tariff by slashing expenses, or pass along the higher costs to their customers.

What is a maquiladora?

A maquiladora in Mexico is a factory that operates under preferential tariff programs established and administered by the United States and Mexico. Materials, assembly components and production equipment used in maquiladoras are allowed to enter Mexico duty-free. Products made there can be exported into the United States at lower tariffs than those from other countries. The Maquiladora Program was initiated in Mexico in 1964.

Source: Manufacturing in Mexico