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What Mexican Tariffs Would Mean For Retail

Jun 1, 2019
Originally published on June 2, 2019 10:57 am
Copyright 2019 NPR. To see more, visit https://www.npr.org.

SCOTT SIMON, HOST:

President Trump's new idea to stem illegal immigration, most of it from Central America, has forced Mexico to deal with it. The instrument - tariffs on all goods coming in from Mexico. The tariffs begin at 5%, but quickly rise to 25% by October if Mexico doesn't manage to stop the flow of migrants. The new tariffs are generating a lot of opposition from business groups, from lawmakers - according to The Wall Street Journal, even the president's own trade adviser. Higher tariffs could slow the economy and result in higher prices for U.S. consumers.

NPR's Alina Selyukh is here. Thanks very much for being with us.

ALINA SELYUKH, BYLINE: Hello.

SIMON: And what type of products would be most affected?

SELYUKH: Pretty much products across the board. Mexico is the third-largest trading partner for the United States, behind China and Canada. So this threat of potentially 25% tariffs escalating in a matter of a few months - it's hard to imagine it not being reflected in prices that American consumers would pay.

There are many parts and elements of products, even if they're made in the United States, that travel back and forth across the U.S.-Mexico border. Autos are a good example of that. They make up almost a fifth of all imports from Mexico. You get a lot of parts for cars, trucks, farming equipment, trains, but also computers and electronics, electrical, medical and telecom equipment.

And then you've got clothes and shoes. Mexico is one of the top suppliers. Denim is a big chunk. Mexico is the top source of men's and boy's jeans. And, of course, food and drinks - fruits like pineapples, everyone's favorite avocados and, also, beer.

SIMON: Yeah. We've been hearing a lot about the impact on prices from tariffs on Chinese imports. What about the effect of tariffs on Chinese and Mexican imports at the same time?

SELYUKH: Economists are saying this could potentially shrink the U.S. economic growth as the country's on the verge of two trade wars because remember, the Trump administration has also threatened to expand tariffs on Chinese goods - up to 25% for virtually everything that's imported from China. And it's not the foreign companies that immediately pay these tariffs, but the U.S. companies because they are the importers of these goods.

So if you're a retailer or manufacturer who relies on both China and Mexico for materials or products, it's only so long that you can offset this new cost internally before you start raising prices. And that's why, immediately after Trump threatened tariffs on Mexican imports, we saw shares sliding for car companies like GM, grocery chains like Kroger and retailers like Gap and Macy's.

SIMON: U.S. businesses have not been happy.

SELYUKH: There is a lot of consternation. Retail and other industry trade groups are complaining that the president is using economic weapons to fight political battles. And they are incurring new costs in response to problems that they don't really have much to do with, like, in this case, illegal immigration.

There's also a sense of whiplash. The Trump administration has just finished negotiating a new North American Free Trade Agreement with Canada and Mexico, the so-called new NAFTA. And it's just landed in Congress for review. And, in fact, President Trump had to lift some of his earlier tariffs on steel and aluminum to get Congress to consider it.

And now we've got this new threat of tariffs, which took companies that trade with Mexico by surprise. The Trump administration seems confident that its - their strategy will work in the long run, but investors have their doubts. The stock market closed lower for the week for the sixth week in a row.

SIMON: NPR's business correspondent Alina Selyukh. Thanks so much.

SELYUKH: Thank you. Transcript provided by NPR, Copyright NPR.