Trump's proposed 20% Mexican import tax gets mixed reactions from manufacturers
When Tim Perry, president of Precision Metal Technologies Inc., heard about President Donald Trump's suggested 20 percent tariff on imports from Mexico, he quickly stopped plans to open a Texas plant.
The Rolling Meadows-based manufacturer of components is growing and a new plant in San Antonio would have opened later this year. It would have offered new jobs and a chance to nurture additional growth. Perry tabled the plan because he is worried about more than taxes.
"This tariff on imported products from Mexico could lead to a trade war, then that would be a problem for us," Perry said.
The manufacturer makes various products, including radio frequency shields for navigation devices in cars and ships. It ships parts to Mexico for assembly into finished products that are later sent to other companies in the United States. But if Trump's interactions with Mexico escalate beyond a tax, and lead to a trade war, then Mexico's U.S. customers may cut back or stop buying those finished products that include items from Precision Metal.
Precision, like other manufacturers around the suburbs, is changing its business strategies or taking a wait-and-see attitude after Trump suggested the 20 percent tax on imports from Mexico. The tax would be earmarked to pay for the multibillion-dollar border wall that Trump vowed to build and Mexico refuses to pay for. That forced Trump to find other ways to fund it, such as the proposed tax hike.
If such a tax becomes a reality, some suburban manufacturers could be sorely affected, while others would not suffer at all, said Mary Rose Hennessy, president of Naperville-based Illinois Business Innovation Services, a not-for-profit organization that provides training and consulting services for hundreds of manufacturers every year.
About 20 local manufacturers told Illinois BIS that the idea for a border tax would have no affect on their businesses because they don't receive such imports. Others said the prospect of being taxed again could be "unsettling" or they would need to "rethink" their strategy going forward. Still others remained neutral, needing to learn more about the proposal and whether it could become a reality.
"We are in the wait-and-see mode - too early to respond," one company executive told Illinois BIS. Some manufacturers declined to comment or did not want quotes attributed to their companies.
The connections to Mexico started years ago under NAFTA, also known as the North American Free Trade Agreement. It is a regulation that went into effect Jan. 1, 1994, in Mexico, Canada and the United States to eliminate most tariffs on trade between these countries. NAFTA and other U.S. trade laws and tax policy gave incentives to all manufacturers to move some operations to lower-cost countries, according to Investopedia. NAFTA also has been targeted by Trump for review.
Many manufacturers first responded to NAFTA by opening plants in Mexico. Such a plant often supported larger original equipment manufacturing partners, known as OEMs, that moved to Mexico. Unless those large businesses move back to the United States, there will be little impact on the smaller suppliers.
"The losers will be American consumers and workers if the OEMs don't change strategy and move back to the United States, because the jobs won't return, and the consumer will pay more for cars, and other goods that are made in Mexico," Hennessy said. "The CEOs that we work with are hopeful that the new administration will provide incentives for manufacturers to stay in the United States by lowering taxes and by insisting on fair international trade practices."
Trump's Mexican import tax has not yet been formally proposed. But if it does, it could find itself as part of a larger tax package for businesses.
"It is a very complex issue that I don't have a good feel for, as of yet," said Ed Youdell, president and CEO of Elgin-based Fabricators and Manufacturers Association International. "I see a major stumbling block being the bureaucracy around reporting and tracking the tax. In my opinion, if the administration is looking to reduce regulation and compliance burdens on manufacturers, having a policy that does not align with this philosophy becomes harder to pass."
Youdell said an alternative could involve lowering corporate rates along with incentives that encourage large multinational companies to bring back cash from overseas. This type of policy could lead to substantial capital investment by U.S. manufacturers and lead to greater productivity and increased competitiveness.
As for the proposed tax on Mexican imports, Youdell remained neutral.
"This really is a case-by-case issue," said Youdell.
Unlike Precision Metal, Westmont-based Magnet-Schultz of America, which makes electro magnet products found in garage doors, sends components to Mexico for assembly. Then Mexico ships the finished products directly to other companies in the United States. So Magnet-Schultz would not be directly affected by such a 20 percent import tax.
But those receiving that shipment would pay the tax and those partners would, as a result, need to raise their prices to cover such costs. That could affect future orders.
"I think Trump is just using this tariff as a very good bargaining tool (when renegotiating NAFTA)," said Greg Roskuszka, president and CEO of Magnet-Schultz of America.
Facts around the proposed 20 percent Mexican import tax
• The U.S. and Mexico conduct some $1.6 billion a day in cross-border trade, and cooperate on everything from migration to anti-drug enforcement to major environmental issues.
• At the heart of the dispute is President Trump’s insistence that Mexico will pay for construction of the massive wall he has promised along the southern U.S. border.
• The wall project is estimated to cost between $12 billion and $15 billion.
• The plan was a centerpiece of Trump’s election campaign, though he never specified how Mexico would fund the project or how he would compel payments.
• The border tax plan would need congressional approval.
• Mexico is one of America’s biggest trade partners, and the U.S. is the No. 1 buyer from that country, accounting for about 80 percent of Mexican exports.
Business Ledger research