Donald Trump is talking about levying a 20% import tax against Mexican imports in order to pay for his wall, a wall so effective that two typical college girls can defeat it:
So anyhow, one argument is that this will help American manufacturing by eliminating Mexican competition. There’s just one problem with that concept: Virtually every American manufacturer relies on parts and components manufactured in Mexico, even if their stuff is built in America.
I’m most familiar with Chrysler. Their 3.6L Pentastar engine is used in virtually all of their vehicles, from their Dodge Challenger to Jeep Wranglers to their giant RAM pickup trucks. And approximately half of these are manufactured in Saltillo, Mexico, along with roughly 3/4ths of their RAM 1500 pickup trucks.
Could Chrysler survive if Trump imposed a 20% tax on their engines as they imported them to assemble into their vehicles? Probably not. They can’t raise their prices by 5% to counter the cost of the engine (remember, the engine is roughly 1/3rd of the cost of the vehicle), because prices are set by the market, not by them — their competitors would run them out of business. So they’d lose money. And Fiat isn’t exactly flush with cash, they’ve had record sales the past few years, but have had to invest massive amounts of money too. For example, tooling up for the 2018 Jeep Wrangler is costing them $1B (one BILLION dollars). They apparently spent TWO billion dollars tooling up for their new Pacifica minivan. And so forth. So they can’t afford to lose money. Especially since one of their big cash cows, the Ram 1500 pickup and all of the heavy duty pickup trucks, are made in Saltillo (the extended cab 1500’s and some of the crew cab 1500’s are made at Warren Truck near Detroit).
To make things even more confusing, FCA makes small cars as well as some Mexican-market cars in Toluca, near Mexico City, and every engine in the Fiat 500, Jeep Compass, and Dodge Journey that are made in Toluca is made in their Dundee engine plant near Detroit and exported to Mexico. So let’s get this straight — a made-in-America engine is exported to Mexico to be installed in a car that is importing back to the United States, and it’s going to get tariffed in order to encourage American manufacturing? Not to mention all the American-built cars with the imported 3.6L engines that are being turned right back around and exported *back* to Mexico or Latin America, meaning they have to effectively pay an *export* tax on those vehicles thanks to the import tax on the engines? In what world does that make sense? Not to mention that a lot of these small cars are not being imported — they’re going to the Mexican or Latin American markets.
In short: A 20% tariff on Mexican goods would devastate Chrysler. It’d hurt sales of their cars south of the border since they’d still have to pay the import tax on the imported components before being able to export the cars, and it’d cause major supply chain disruptions. Being unable to get engines would cause assembly lines to be idled all around the area within a 200 mile radius of Detroit where Chrysler has the majority of its assembly plants. Tens of thousands of Americans would be thrown out on the streets. All because His Fraudulency Donald the Trump wants a frickin’ wall that can’t work…
Okay, are you back? LOL. So, could a tariff work to encourage manufacturing on US soil?
The answer: Yes. But it’d have to be carefully targeted, slowly brought into effect over a course of years, and assistance to companies like Chrysler who would need literally billions of dollars to bring those manufacturing facilities back from Mexico would be absolutely necessary or there will be massive job losses in the United States as a result of being cut off from critical components. It’d be a complex and intricate task, one that would challenge a competent administration — nevermind one as incompetent as the Trump Administration is proving to be.
And that, people, is why Trump’s proposal to help American manufacturing would destroy American manufacturing. We simply need too many foreign-built components to build our stuff nowadays, and moving production of those components back to the United States will take years, if not decades. Imposing a tariff next week wouldn’t move production of those components back to America — it’d just make it expensive to import them, making American goods less competitive in foreign markets and making prices rise here in the United States.
And let’s not even start to talk about the other Mexican goods affected, from tequila to fresh fruits and vegetables… the reality just looking at manufacturing is dire enough. Every single dime of that tariff would immediately be passed on as higher prices to consumers. We’d end up paying *twice* for the wall — once as taxes while it is built, and then forever after as tariffs after it was built. In what world is that a reasonable thing to do?!
– Badtux the “These people are dangerous morons” Penguin
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