Free trade and low wage costs have lured more than 2,000 German companies to Mexico – with production, especially for the US market. Donald Trump’s new tariffs put a lot of strain on them. VW reacts with an emergency plan.
German companies like to produce in Mexico, which has to do with the USA. Since the first North American free trade agreement NAFTA in 1994, they have been using the low wages here and then previously sold their goods in the United States.
2,100 companies with German capital work in Mexico offer around 300,000 jobs. In addition to DAX companies, there are many specialized medium-sized companies in the country, in industries such as pharmacy, chemistry, electrical, mechanical engineering or logistics. And the most important thing: the automotive industry with the companies VW, Audi, Mercedes and BMW as well as suppliers.
Cars and parts go across the border back and forth
They all meet the 25 percent tumbling, which Donald Trump has imposed, explains Johannes Hauser, Managing Director of the German-Mexican Chamber of Commerce and Industry in Mexico City. “Almost 50 percent of the vehicles from German production produced here in Mexico go to the USA. In this respect, the concern is already great, it is a hard blow,” says Hauser. “Many of the medium -sized companies here in Mexico export directly to the USA or indirectly by delivering to customers here in Mexico, whose end products go to the United States. This means that a triangular effect that has a negative effect is to be expected.”
Auto parts and ultimately the finished vehicles go across the border. These movements now have 25 percent inches – a considerable cost factor. Volkswagen Therefore, check “adjustments”, activate an “emergency plan”. Because the US production facilities of the Wolfsburg group, which import parts from Mexico, are also affected.
The free trade is undermined
Mexico is not only seventh largest car producer worldwide, but even the fourth largest auto parts manufacturer. VW is currently building the Jetta and Tiguan models. So far, the manufacturer benefited from the North American free trade zone, which Trump himself negotiated under the name USMCA in 2018.
“It is de facto undermined, because a free trade zone, as the name says, ultimately lives in her Esprit and her spirit that the trade is freed from tariffs and other restrictions,” says Hauser chamber leader. “And what happens here now is of course the opposite of it, the trade is less free.” This is not the case with the USMCA agreement that was negotiated by Trump himself, which the Republican described full-bodied as the “best agreement” at all. “This is a sad last step.”
This step could lead Mexico into the recession, says Johannes Hauser. The Mexico location becomes significantly uninteresting for German companies if the 25 percent tariffs exist in the long term. Then only the free trade with the European Union and the Latin American market, in which China has already entered.
