The American truck industry is in a state of mild fear since President Trump’s proclamation on 30th May that he intended to impose a new round of tariffs aimed at Mexico, which has once again sent shockwaves rippling through the financial markets, as well as the automotive industry.
While experts say the initial impact on truck operations will be minimal, the effects will become more dire with each passing month if the dispute is not resolved quickly.
President Trump announced he would implement a 5 per cent tariff on all goods coming in to the USA from Mexico, staring on the 10th June, unless Mexico worked to stem the tide of illegal immigration crossing the U.S. southern border. He threatens that if the flow of refugees was not stopped he would increase the tariff to 10 per cent on 1 July 1, 15 per cent on 1 August, 20 per cent on 1st September and finally 25 per cent on 1st October.
While the moves are sure to please President Trump’s base of conservative voters, the moves do not come with the real possibility of inflicting cost increases on American consumers across a wide swath of products and industries – including trucks.
Contrary to President Trump’s claims that nations pay for tariffs, it is actually consumers in the country imposing tariffs who end up footing the bill for the increased prices tariffs create. This means the price of vehicles and components produced in Mexico could rise as a result of the president’s actions. The automotive manufacturing sector and other industries in Mexico are responsible for massive freight volumes between the U.S., Canada and Mexico, and those freight volumes could drop off considerably if demand for products produced in Mexico drop because of increased prices created by tariffs.
Avery Vise, vice president of FTR Transportation Intelligence, said that if the tariffs continued to rise to 25 per cent, truck makers would be in a difficult position and it would inevitably have to pass those costs on to buyers.
“There could be some impact as fleets suddenly reevaluate market conditions to determine just how badly they need new trucks, however I wouldn’t expect to see much impact on overall truck pricing until the tariffs peaked in October,” said Mr Vise.
However Vise cautioned that if the dispute drags out over several months, it is likely consumers and businesses will begin to seek alternative goods and products as the prices of Mexican ones increase, to the point that freight volumes could decline considerably.
“There’s a lot at stake here. Mexico is one of the United States’ top trading partners, and there is a lot at stake here for the transportation industry. The border crossing in Laredo, Texas, alone accounts for 20 per cent of the value of goods being moved by truck in North America,” said Vise.
“So we’re talking about a huge market for trucking. If this trade dispute drags on into the third quarter carriers tied to the cross-border market will be affected disproportionately by these rising tariffs,” he added.
Another worrisome point for Vise is the fact that unlike President’s Trump’s past tariff threats, this latest one is not actually tied to any sort of economic outcome.
“There are a lot of things unclear about this situation, we don’t know how it will be implemented, or how long it will last,” he added.
“Tariffs aren’t used this way very often. The tariffs implemented against China were intended to change trade practices. In this case, it’s to change an immigration policy. So it’s hard to determine if this will work, and how we will quantify things to determine if and when it does work. It’s just a highly unusual situation,” said Vise
Truck and automotive components and parts manufacturers represented by the Motor and Equipment Manufacturers Association, which includes the commercial truck focused Heavy Duty Manufacturers Association, came out strongly against the threat. In a press release, the association and said the move would only serve as an additional tax on the American people and put jobs and investment in the US at risk.
Leading North American truck and engine OEMs, including Daimler, Paccar, Navistar and Cummins, have production facilities in Mexico.
In a statement Daimler Trucks North America said that ‘being a globally active company it welcomes trade agreements that reduce trade barriers and promote free and fair trade and that this trade and investment are key factors for innovation, employment, growth and prosperity’.
“In this context, companies depend on reliable framework of conditions, transparency and predictability in order to make long-term investments. Trade disputes always entail uncertainties, both for companies and for customers,” said the Daimler statement.
Paccar said in its statement that it operates truck factories in both the U.S. and Mexico and that its strategy is to produce trucks in the markets in which they are sold.
“Therefore, the vast majority of trucks produced in Mexico have been for Mexico. Paccar supports free and fair trade, and the USMCA.” (The U.S.-Mexico-Canada trade agreement that is supposed to replace NAFTA, the North American Free Trade Agreement).