By Irina Ivanova
/ MoneyWatch
Trump threatens new tariffs on Mexico
- The U.S. imported $372 billion worth of products from Mexico in 2018, more than our trade total with Canada.
- "U.S. trade with Mexico is basically all about cars," said one expert, with the U.S. importing $93 billion worth of cars or car parts last year, including $22 billion worth of car engines, $5 billion in car seats and $5 billion in chassis.
- Second to cars is tech equipment, including $26 billion of computers and computer parts, semiconductors and software.
- Americans also imported $6.7 billion worth of vegetables and $5.3 billion of fruit and nuts from Mexico.
The Trump administration's proposal to impose punishing tariffs on Mexico, rising to 25% over the course of just a few months, took many trade experts by surprise. Some economists even predict a recession if an agreement isn't reached by the fall, when the full tariffs would start taxing billions worth of consumer and industrial products crossing the southern border.
To understand the concerns, it helps to look at the flow of goods between the two countries. Mexico is now the U.S.' largest trading partner, surpassing Canada last year to take the top spot. The U.S. imported $372 billion worth of products from Mexico in 2018, according togovernment trade data. The top category was cars and car parts, most of them by American automakers and intended for the U.S. market. The U.S. also relies heavily on Mexico for machinery, furniture and produce.
Among other imports from Mexico, the U.S. got $93 billion worth of cars or car parts, according to UN Comtrade, which keeps data on trade. That includes $22 billion worth of car engines, $5 billion in car seats and $5 billion in chassis.
"U.S. trade with Mexico is basically all about cars," Torsten Slok, chief economist at Deutsche Bank, wrote in a presentation to investors Friday.
Second to cars is tech equipment—including $26 billion of computers and computer parts, as well as semiconductors and software.
Mexico is also a heavy producer of home appliances, including washing machines, refrigerators and air conditioners. Between 30% and 44% of the U.S.' imports in this category come from Mexico, according to analysis from Goldman Sachs.
Then there's agricultural products—one-third of which the U.S. imports from Mexico. Americans also imported $6.7 billion worth of vegetables and $5.3 billion of fruit and nuts from our southern partner. Among them were $2.3 billion of tomatoes and $1.7 billion of avocados.
The category of "beverages, spirits and vinegar" racked up $5 billion of exports to the U.S. Beer made up $3.5 billion of that figure and spirits another $1.6 billion. That includes Mexican beers Corona, Dos Equis and Modelo, and the many tequilas for which the country is renowned.
"The bottom line is this threat hurts the U.S. economy via consumer spending getting hit," Jack McIntyre, portfolio manager at Brandywine Global, said in an emailed note. Lower consumer spending translates into a slower economy—on both sides of the border.
Said Oxford Economics: "Since goods tend to cross the border multiple times – about 40% of US imports from Mexico and 75% of US exports to Mexico are intermediate goods – the duties represent a significant risk to business activity both north and south of the border."
Oxford predicted U.S. growth would drop by two-thirds in 2020 to about 1% while Mexico would likely fall into recession.
