Mexico’s exclusion from the mutual tariffs that US President Trump has issued lets the Mexicans breathe a sigh of relief. But the car manufacturers in Mexico, including German manufacturers, have every reason to be nervous.
In her morning press conference, the Mexican President Claudia Sheinbaum praised the good relationships with the United States. They were based on respect for sovereignty and good cooperation, according to Sheinbaum. Mexico has been spared some of the mutual tariffs that US President Trump has imposed in the past few weeks.
However, the carmakers in Mexico, including German manufacturers, are asked to pay 25 percent. Sheinbaum nevertheless tried to spread optimism. “In the worst case, the tariffs remain for the automotive industry, but then Mexico will still have the location advantage – the proximity to the USA. And we believe that we can still negotiate better conditions,” said the Mexican President.
She is also in contact with the three major car manufacturers Mercedes, BMW and Volkswagen. They recommend that they export them as part of the North American free trade agreement. “This means that they have to produce a larger proportion in North America,” said Sheinbaum.
Customs despite Free trade agreement
Mexico, together with Canada and the United States, has concluded a free trade agreement, 50 percent of the deliveries of Mexican products to the United States benefit from it. But the situation does not seem to be that clear.
The North American free trade agreement has actually freed imports of tariffs when the value of the value in North America is at least 75 percent, a product was largely produced in the region. US President Trump now imposed tariffs of 25 percent on auto imports. In doing so, he violates the agreement with Mexico and Canada, which he had negotiated during his first term.
Challenge Engine production
But even if the sheet should turn in favor of the carmakers, German companies would face the challenge of fulfilling the conditions of the North American free trade agreement, explains Johannes Hauser, Managing Director of the German-Mexican Chamber of Commerce and Industry.
“The point is that these 75 percent of the added value can only be reached if the companies within the North America economic area also maintain engine production. This is not the case with premium providers.” The engines would be imported – to the USA, but also to Mexico. A relocation of the location is expensive and of course not to be lifted overnight, says Hauser.
Free trade agreement Before new negotiations
Trump already threatened to end the agreement with Mexico and Canada. But the US companies are also dependent on it, says Hauser. “Because the integration of the North America’s economic area has progressed so far that it would really have self -destructive effects if you question the agreement.”
It should actually be negotiated next year. Experts advise Mexico to start negotiations as soon as possible in order to shift the talks with the USA from customs avoidance to a renewed trade agreement.
