As Trade War Spreads to Mexico, Companies Lose a Safe Harbor

on Jun3
by | Comments Off on As Trade War Spreads to Mexico, Companies Lose a Safe Harbor |

BD, a medical technology company, said last month that it was moving some of its manufacturing to Mexico from China in part because of the Trump administration’s tariffs. Troy Kirkpatrick, a BD spokesman, said Friday that the company was still in the process of making the shift, involving diagnostic devices and other products, and was assessing the latest tariff announcement.

Mr. Trump said in a Twitter post on Thursday evening that he would impose a 5 percent tariff on Mexican imports on June 10, and ratchet it up to 25 percent by October if the immigration issues were not resolved. If the tariffs materialize, consumers could feel them almost immediately, most likely starting with the price of fresh fruits and vegetables — a competitive market with slim margins where distributors would have little choice but to pass on costs.

“As a consumer, that was my first thought,” said Emily Blanchard, an economist at the Tuck School of Business at Dartmouth College. “Those are my avocados and strawberries. What are you doing?”

For other products, the reverberations could be more gradual. Companies may initially absorb some of the costs to avoid losing business, particularly on higher-margin items, or ones where they face competition from domestic producers. But economic research shows that consumers eventually bear the brunt of tariffs. The impact could be greater in the case of trade with Mexico because so many imports from there contain parts or materials from American factories.

“We’re taxing ourselves on our own goods,” said Katheryn Russ, an economist at the University of California, Davis.

Economists said the direct effects of a tariff of 5 percent or even 10 percent would probably be small, especially with a strong economy and low inflation. The larger threat, they said, was the disruption they could cause for automakers and others who have come to rely on supply chains that seamlessly cross international boundaries. Those supply chains will not fray overnight, said Brian Dunch, a trade expert at PricewaterhouseCoopers. But over time, they could break down, particularly if companies decide they cannot trust trade rules to be consistent from one year to the next.

“It’s the cumulative effect of all this uncertainty,” Mr. Dunch said. “You’ll see supply chains Balkanize.”



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