Automakers and farmers could get walloped by Trump’s Mexico tariffs

President Donald Trump’s surprise announcement that his administration will levy a 5% tariff on all Mexican imports starting on June 10 could create economic havoc for automakers and the agriculture industry, while raising costs for American consumers and businesses.

Mr. Trump said the percentage will gradually increase — up to 25% — “until the Illegal Immigration problem is remedied,” referring to the surge of Central American migrants trying to cross the U.S. border. The announcement, which comes while the Trump administration is also waging a trade war with China, wasn’t well received by Wall Street, with major stock indexes sliding more than 1% in early trading.

Automakers are among the stocks opening lower on Friday, including Ford Motor and General Motors, on fears that the Mexico tariffs will take a massive hit. Auto parts and vehicles manufactured in Mexico represent a significant amount of the trade between the two countries, with automakers’ supply chains stretching across the border. Vehicles represent the top import from Mexico, at $93 billion, according to U.S. data.

The threat also puts at stake the United States-Mexico-Canada Agreement, a trade deal that is the cornerstone of Trump’s legislative agenda and seen as beneficial to his reelection effort. Neither Canada nor Mexico have yet ratified the agreement.

“The latest tariff threat with Mexico was quite unexpected, as we’ve been hearing how well discussions have been going with both Canada and Mexico,” Ryan Detrick, senior market strategist for LPL Financial, said via email. “This is just the latest worry to put on the fire for investors. The big question at the end of the day though is can we really fight two trade wars at the same time?”

Automakers have large percentages of foreign auto parts in their vehicles, sometimes more than half. About 44% of the parts used to manufacture the Chevrolet Silverado stem from Mexico, while another 10% is imported from other countries, for example.

About 13% of U.S. auto sales are Mexico imports, with about 12% of U.S. parts sourced from Mexico, according to UBS analyst Colin Langan. Vehicle costs for American consumers would rise about 3.6% if tariffs reach 25%, he noted.

“Another tax for Americans”

Other products that the U.S. imports from Mexico include electrical machinery, at $64 billion in imports, and agricultural imports, at $26 billion. Mexico is the largest agricultural supplier to the U.S.

The costs to consumers could be considerable, with Raymond James estimating that U.S. businesses and consumers would shell out $86 billion in tariffs. That’s on top of $62.5 billion in tariffs placed on Chinese goods by the Trump administration, which will go into effect on June 1 Beijing time.

The apparel industry decried the Mexico tariffs, saying it represents “another tax for Americans.” Mr. Trump has continuously misrepresented who pays tariffs, falsely stating that China pays the tariffs. In fact, U.S. importers — businesses like Walmart and Costco — pay the tariffs, with many retailers warning they will need to pass on the costs to consumers by raising prices.

“President Trump is once again taking aim at America farmers, attacking their livelihoods while they are still reeling from losing export markets in China, Europe, and elsewhere thanks to previously imposed tariffs and counter tariffs,” said Rick Helfenbein, president and CEO of the American Apparel & Footwear Association, in a statement. “The bottom line is that these tariffs are disastrous for the American economy.”

Avocado prices

One of Americans’ favorite foods may get socked by the trade war: avocados. Prices of avocados have already doubled over the last two months amidst the Trump administration’s rhetoric about immigration and trade, Bloomberg News notes.

Shares of Chipotle are slated to open lower on Friday on fears a new trade war with Mexico will lead to higher costs, given its reliance on Mexican avocados to make its guacamole.

Other foods that would likely increase in price for American shoppers are berries and asparagus, which are also imported from Mexico.

–With reporting from The Associated Press.