Trump’s Mexico tariffs: Expect price hikes in food, autos and electronics

June 01-- Jun. 1--President Trump's plan to impose tariffs on Mexican exports as a cudgel to halt illegal immigration will likely inflict immediate economic pain on U.S. consumers, from higher costs at the supermarket and auto repair shops to pricier six-packs of craft beer from Baja California.

Not long after news hit Thursday that the president was planning to impose what would be escalating tariffs on all goods imported from Mexico, calls and emails came flooding in to the San Diego Regional Chamber of Commerce from local businesses and trade groups fearful of the immediate financial repercussions. Under Trump's announced plan, the tariff would continue rising monthly until Mexican authorities halted the flow of immigrants across the U.S. southern border.

"A tariff on imports is paid by the importer. You're not taxing Mexico," said Paola Avila, vice president of international business affairs for the chamber. "We've heard from every industry, from automotive, beer and wine distilleries, agriculture. Everyone is alarmed by this, the maquiladora industry is up in arms. Why? because it's economic suicide for everyone."

Trump announced the tariffs through a series of tweets Thursday night and Friday morning.

"Mexico has taken advantage of the United States for decades," Trump said in one of the posts.

The president said his administration will impose a 5 percent tariff on Mexican imports on June 10, but that will be doubled to 10 percent on July 1 and increase by 5 percentage points per month until October, when the tariffs would "permanently remain at the 25 percent level unless and until Mexico substantially stops the illegal inflow of aliens coming through its territory."

In a move to defuse growing trade tensions with the U.S., the Mexican government said Friday that the two sides would meet in Washington next week for high-level discussions.

Jock O'Connell, the international trade adviser at Los Angeles-based research and consulting firm Beacon Economics, said the biggest impact will be felt in the automotive and high tech sectors.

"The real danger here is in disrupting existing supply chains," O'Connell said. "There's a lot of production-sharing that goes on between the U.S. and Mexico. A lot of those vehicles that have been manufactured in Mexico contain sub-components that are manufactured in California -- particularly if it's electronics. If it has something to do with computers that are increasingly incorporated into motor vehicles, a lot of that is coming from California."

Consumers may not realize it, but the cross-border nature of the auto industry results in a multiplier effect when it comes to tariffs, says the Michigan-based Center for Automotive Research.

"We are building vehicles together, so there may be a part made in Canada and sent to Mexico and then it comes back to the U.S. and is put on an engine and goes to Mexico for a car that comes back to the U.S. for sale," said Kristin Dziczek, a vice president at the Center for Automotive Research. "What that means is the tariff multiplies every time that part crosses the border.

"We're going to see costs go up when you buy a car and repair a car, and many of the after-market products we use, like air filters, oil filters, spark plugs, windshield wipers, are made in China or Mexico. So if they have very high tariffs, that will make maintaining your vehicle a lot more expensive."

At least 14 percent of vehicles sold in the U.S. were produced in Mexico, according to Edmunds, the online company that researches cars and auto pricing.

Locally, San Diego and Imperial counties import $4.1 billion in goods yearly from Baja California, according to Avila of the Chamber of Commerce. Assuming an initial 5 percent tariff in June, that translates to an overall tariff of $17 million on those imported goods, she said.

Nationally, the U.S. imported $346.5 billion in goods from Mexico last year, according to government trade figures. Using those numbers, a 5 percent tariff would translate to more than $17.3 billion. A 25 percent tariff would equal about $86.6 billion.

Reacting to the tariff news, the stock market took a dive Friday, with the Dow Jones Industrial Average falling 354.84 points, a loss of 1.41 percent. The companies considered the "Big Three" among U.S. automakers each finished the trading day in negative territory. GM was down 4.25 percent, Ford was off 2.26 percent and Fiat Chrysler was down 5.82 percent.

In addition to auto manufacturing, Mexico is also a popular location for companies making consumer electronics.

Taiwan's Foxconn has its own factory in Tijuana, for example, employs about 4,500 people manufacturing Sony-branded televisions and medical devices.

O'Connell said the impact of a 5 percent tariff "is manageable" because the Mexican peso dropped 3 to 4 percent on the news of the tariff.

"That means a dollar can buy more Mexican product," O'Connell said. "So that tends to mute the impact of a 5 percent tariff."

But if the tariff grows to 25 percent, "That's a serious tariff," he added. "It's going to increase the cost of a lot of the goods flowing back and forth (between the U.S. and Mexico) that is eventually paid for by the consumer -- the person who's buying either a finished automobile or going to an auto parts store and buying a new part for your car."

Californians are also heavily dependent on Mexico for their fruit and vegetable consumption. The California Grocers Association, which represents 80 percent of the state's grocers, estimates about one-third of their produce comes from Mexico producers. San Diego-based Specialty Produce, which supplies a wide range of fresh vegetables, fruits and herbs to 700 restaurants in San Diego County, cites a similar percentage.

A 25 percent tariff could cost consumers of Mexican produce such as avocados and mangoes $3 billion annually, according to the Fresh Produce Association of the Americas, a trade group.

While not as big a sector, beer and wine imports from Mexico will also be hugely affected, say importers. Steven Walker, of San Diego-based Polaris Beverages, worries his entire business is in jeopardy once tariffs are put in place, especially if they go higher. Walker's company imports about about 20,000 cases annually of Cerveza de Colima, Insurgente and Cerveza Loba craft beers from Baja California, which is distributed throughout Southern California.

Walker estimates the tariffs could add about a dollar to the price of a six-pack, although he's not so sure how much more consumers on this side of the border are willing to pay for premium beer from Mexico.

"My first reaction when I heard about the tariffs was I'm not going to have a business," Walker said. "The craft beer industry is very competitive to begin with, especially in Southern California, and the Mexican industry has the added expense of importing all the raw materials to make the beer and then you add in the transportation costs.

"Given the simple fact we're paying more to produce the beer, the price is already higher here compared to other craft beers so it might be unreasonable to think the consumer will pay a higher premium with the tariffs. I already sent off my letter to my congressman and to Donald this morning."

Similarly impacted is wine importer La Competencia Imports, based in Napa, which handles 21 different brands in Baja California. Many of the well-regarded wines from Valle de Guadalupe in Mexico are still relatively new to the U.S. market, making it harder to pass on tariff costs to wine connoisseurs, La Competencia founder Tom Bracamontes said.

"So just as you're building your customer base and working with distributors and retailers and restaurants, how are they going to react to a price increase?" said Bracamontes, who imports up to 3,500 cases of Mexican wine a year. "I don't think the market can sustain an across-the-board 5 percent increase. And how long can you eat a lower margin before you go hungry financially, so that's the math we're all doing right now."

One strategy, he says, may be to import significantly more wine than normal before the start of the tariffs in order to "buy us time to allow the political system to deal with this issue."

In the meantime, the escalating nature of the tariffs "puts a lot of pressure" on the Mexican government and president Andrés Manuel López Obrador, said James Hamilton, economics professor at UC San Diego. But Hamilton questioned the strategy from a political standpoint.

"Even if (the López Obrador administration) wants to accommodate, they're still going to have to do it in a way to save face, politically," Hamilton said. "Ultimately, their constituency is the Mexican public and they have to find a way to respond to this that doesn't make it look like Mexico was just ordered around by the United States."

The Los Angeles Times contributed to this story.

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