“Threats from Trump to automotive in Mexico should be taken seriously” – Deutsche Welle

Donald Trump has threatened to import duties of 35 per cent for vehicles made in Mexico. According to one expert, companies will need to decrease the domestic production, because other countries could not absorb the surplus.

After criticizing General Motors and Toyota, the president-elect of the united States, Donald Trump, warned the German carmaker BMW on Sunday 15 January, you will have to pay import duties of 35 per cent if you build your factory in Mexico and exports the vehicles to EE. UU. BMW plans to open a factory in Mexico in 2019.

According to Ferdinand Dudenhöffer, founder and director of the Research Center for Automotive (CAR, for its acronym in English), University of Duisburg-Essen, Germany, the assemblers must take seriously the threats of Trump, which makes pressure so that the transfer of production to Mexico is less than what was originally planned.

“Brazil has economic problems, the other markets of South America are relatively small and would not be able to absorb that volume," said Dudenhöffer in an interview with DW. “That is to say, that there are no new customers for the surplus of production in Mexico, and that the assemblers will have to decrease the production in the whole country."

DW: How do you interpret the threats from Trump?

Dudenhöffer: Trump export unemployment from the “rust belt” toward Mexico.

Ferdinand Dudenhöffer: I Think that the threats from Trump should be taken seriously because they were not made only to a company. Trump tries to implement a customs fees for vehicles produced in other countries. If that rate of import corresponds with the proceeds of the exports made by BMW from EE. UU., then I think BMW would come out practically unscathed, because, today, that company produces in the united. UU. more cars it sells.

What is the true objective of the future president of the united. UU.?

Trump pursues the objective that, if a company builds a factory, this should take into account the capacity that will be installed in the production plant. The future president knows exactly that the construction of the factory will not be interrupted and will continue to be built. But that puts them under pressure so that the transfer of production is much less in comparison with what was planned.

So, many assemblers must stop investing in Mexico…

Certainly. Trump exports the unemployment of the rust belt (industrial belt of the Middle East EE. UU.) to Mexico, that was the great El Dorado of the automobile production. Last year there were there for about 3.5 million vehicles, in great part for the EE. UU., and a small part to South America. We believed that, by 2020, Mexico would be producing 5 million cars, and that now no longer happen. That is to say, that the economic development of Mexico will suffer extremely under the chairmanship of Donald Trump.

According to reports, Mexico has free trade agreements with 44 countries. Is it possible to leave towards the united States and look to other markets?

The situation is relatively difficult in other markets, that they are not going to be able to absorb what that would be exported to the usa. UU. in the next three or four years. Either because they are far away from Mexico, or because the cost structure in these countries is different. A part of the production will be sold to countries in South America, but it will no longer produce that other markets can’t absorb. Long-term, EE. UU. you will also lose, because there will be an increase of prices of these goods in the u.s. market. And, with a global growth reduced, a poor economic growth of Mexico will have long-term effects for the economy of EE. UU.

Mexico is the third largest economic partner of EE. UU., while EE. UU. it is the main trading partner of Mexico. Relations intensified since the entry into force of the NAFTA. What can happen now with this free trade agreement?

I Think that it will rebuild the entire structure of the NAFTA. Clear that Trump will continue to develop the close cooperation with Canada, but I am of the opinion that this enemy image that he has of Mexico will make that country and other south american nations are also considered enemies that they take the jobs to the americans. And they will suffer for it for the next few years.

why Mexico became The el Dorado of the assembly?

The main reason is cheap labor. In that country are paid per hour worked for about 5 euros, while in EE. UU. paid by the hour approximately 35 euros. In addition of being interested in the low wages, the automakers are also seeking to reduce energy costs and pay less taxes. The costs in Mexico are many times lower than in EE. UU.

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