Tariff talk heightens supply chain anxieties
SANTA TERESA, N.M. — For more than 30 years working on both sides of the border, Alexander Sierra has valued a sense of routine. He’s in the automotive industry, the crown jewel of U.S.-Mexico trade, where cross-border supply chains operate with precision.
But uncertainty looms for suppliers here even after President Donald Trump tweeted that he had reached a deal with Mexico. He said he’s suspended, for now, imposing tariffs on all Mexican products after Mexico agreed to do more to crack down on migration from Central America. The plan had sparked an outcry from business leaders and many in the president’s own party, including Texas Gov. Greg Abbott.
Indeed, the newest agreement hardly assuaged Sierra’s concerns. Even before the deal was announced Friday, Sierra said, the damage had been done. He and other auto industry suppliers were already trying to figure out how to coexist with a president who calls himself the “tariff man” and is willing to use the strategy as a diplomatic whip even if it stings U.S. manufacturers and consumers.
Recently Sierra, plant manager at Detroit-based Acme Mills, walked through his border warehouse and distribution center on the edge of Texas and pointed to U.S.-made material from North and South Carolina awaiting transfer to Mexico. Once there, it will be assembled into seats for cars and trucks, including Toyota. Much manufacturing, particularly automotive, relies on inventory ordered just in time to increase efficiency and lower costs. Any future tariffs could raise the price for new autos by thousands of dollars because so many parts and materials go back and forth across the border and would be subject to tariffs each time they crossed into the country.
Sierra takes a long breath and shakes his head, as he talks of the lack of clarity ahead.
“That’s creating a chilling effect on everyone and everything,” he said. “Just thinking about it puts a knot in my stomach. You don’t come into a room with a big stick, but that’s his mode of operation and I guess we just have to learn to live with it.”
Billions in trade at stake
On Saturday, after the deal was struck, analysts and business officials pointed to the 2020 campaign, warning that Mexico and the border will remain in the spotlight. Leaders from both countries will meet again in 90 days to see how the agreement is working and determine whether new measures should be implemented.
“Trump has 17 months ahead of electoral campaign,” warned Rafael Fernandez de Castro, director of the Center for U.S.-Mexico Studies at the University of San Diego “The U.S.-Mexico relationship will be a roller coaster.”
The Trump administration had threatened to raise tariffs because of the rising number of Central American migrants racing to the U.S.-Mexico border, fleeing violence and poverty. In May, more than 130,000 turned themselves in to U.S authorities, requesting asylum.
The numbers are on pace to top 1 million by year end. In April, the president backed down on threats to shut down all of the border’s commercial trade if Mexico did not stop illegal immigration.
Mexico’s President Andres Manuel Lopez Obrador has stressed the need to address the root causes — either violence or lack of economic opportunity — of why tens of thousands of people flee Central America, “so that migration can be optional, not forced.”
Under the agreement, Mexico, facing a weakening peso and rising violence, agreed to deploy, from its newly formed units, 6,000 national guardsmen on its border with Guatemala to reduce illegal immigration from Central American nations. It also agreed to expand a controversial “Remain in Mexico” program across all the southwest border states, including Tamaulipas, a state across the Texas border that’s been wracked by drug violence and was once considered too dangerous by Mexican authorities to release migrants.
The moves include cracking down on migrants at airports and along the border.
Billions of dollars remain at stake in the ongoing squabble between the U.S. and Mexico. Overall, about 80 percent of $678 billion in U.S.-Mexico trade in 2018 passed through Texas borders, according to Jesus Cañas, an economist at the Federal Reserve Bank of Dallas.
Cañas said companies need certainty to make investment decisions, not just for the next year, but looking ahead 20 to 30 years.
“Any disruption to the trade system will affect competitiveness of U.S. products abroad,” Cañas said, before Trump’s announcement. “All this uncertainty is affecting decisions in both countries.”
Deep integration
The impact of that uncertainty is felt across the country, especially in North Texas, the epicenter of the North American supply chain that stretches along the Interstate 35 corridor into central Mexico. There, everything from fresh produce to automobiles comes through daily, employing millions of people on both sides of the border, up to 5 million on the U.S. side alone. The growing economic interdependence impacts industries responsible for such basics as clothing, food and cars. And no state is more dependent on Mexico trade than Texas.
For the past three decades, the two countries have become deeply integrated, including the “stomachs” of consumers on both sides, quipped Alfredo Duarte, president of Dallasbased Taxco Produce. His annual sales top $70 million, about $30 million just from imports from Mexico, including tomatoes, avocados, and jalapeños.
“We’re all meshed together, a mirror of one another,” he said.
But he worries about how that supply chain built over the past 30 years is already being affected by so much ambiguity.
“I take it day by day, tweet by tweet and try not to overreact, but this is not a good way to prepare, to plan ahead,” he said. “This is no way to run a business.”
That sense of uncertainty permeated the weeklong Agave Festival Marfa, where tequila and mezcal producers from Mexico and the U.S. gathered in an annual celebration of the spirits world.
Pedro Jimenez is president of the Guadalajara based Mezonte, which has just entered the U.S. market, including North Texas. He has lots of plans and dreams of winning over American drinkers. Even after the news of a tariff suspension, Jimenez said his future remains murky.
“We’re a very small company and the impact of so much uncertainty could be very big,” he said. “The timing is also bad. We’re just starting to make inroads in a new market,” and stressed that it’s time to stop thinking of exporting only to the United States, and focus on other markets and internally.
“No matter what, we’ll continue to make mezcal,” he said.
Still, warned Kristin Dziczek, of the Ann Arbor, Mich.-based Center for Automotive Research, “You don’t have to love tequila or avocados to be affected.”
Indeed, few industries are monitoring the tariff twists and turns like the auto industry. With a large presence in both the U.S and Mexico, it has already been plagued with uncertainty by other tariffs on steel and aluminum and Chinese goods.
“It’s like whack-a-mole. You can’t get ahead,” said Dziczek said.
Dziczek worries about suppliers like Sierra, smaller companies with limited ability to adjust quickly to a changing business climate.
“Suppliers get hit harder than automakers. They have very little pricing power in relationship with big automakers,” Dziczek said. “Many have very, very slim margins. They’re really squeezed and their ability to price higher is constrained.”
Sierra agrees. “Eventually everyone will pay the price. There are no winners here.”