Usually, at the beginning of the year, businesses plan the year ahead based on the economic forecast by experts.
While global economy is showing slow recovery, 2017, it seems to be adding some extra woes. It’s no secret that last month, global business leaders were closely watching the still-evolving policies of US President Donald Trump.
Trump’s Twitter threat to foreign carmakers with high tariffs on imports of cars made in Mexico in particular is causing concerns to many automakers – especially Japanese and European. General Motors was on the receiving end of Trump’s ire on the Mexico-built Chevy Cruze and Ford for the small car assembly.
Trump’s protectionist trade stance wasn’t just talk as the president signed an executive order to withdraw the US from the 12-nation Trans-Pacific Partnership. Trump has made it clear that he wants to renegotiate the North American Free Trade Agreement.
Of immediate concern is the fate of NAFTA, a free trade pact among Canada, the United States and Mexico. Taking advantage of the deal, Mexico has become an important production base for makers like Toyota, Honda Motor Co., Nissan Motor Co. and Mazda Motor Corp. European brands like BMW also has plans for manufacturing in Mexico.
Nissan CEO Carlos Ghosn has said that the group would deal with any changes to NAFTA realistically. Toyota was heavily criticized by Trump for its plan to build a new factory in Mexico. Toyota currently operates one plant there that manufactures the Tacoma pickup truck. Toyota is set to move Corolla model production from Canada to a new plant in Mexico that will manufacture about 200,000 units of it annually from 2019. After Trump’s online criticism, Toyota released a statement saying the new plant in Mexico will affect jobs from the US and stressed its contribution to the country. Of the American brands, both Ford and GM also make small cars in Mexico. Till now, BMW Group has refused to tow the Trump line. BMW says that it will sell the cars it makes in Mexico all over the world, including in the US, regardless of Trump’s plan to impose a tariff on any Mexican-built car that come into the US. The new BMW plant in Mexico is meant to be a boost to the Series 3 production that’s already underway in Germany and China.
Trump’s fierce criticism of the North America Free Trade Agreement (Nafta) notwithstanding, the Trade Representative’s office points out that since Nafta was passed the value of US goods exported to Mexico has increased by 486 per cent. Nevertheless, given the respective size of their economies, the US is clearly even more important to Mexico, than Mexico is to the US. The US is Mexico’s biggest export market by far. And since Nafta was passed the value of its goods sold north of the border has risen by 638per cent. While US President Trump is calling on manufacturers to create production bases in the US, analysts said that’s an unlikely scenario for Japanese automakers as it is economically unviable due to high employment costs and where labour unions are quite powerful when it comes to tough negotiations. Trump has vowed to energize the economy with a US$1 trillion investment in infrastructure and a cut in corporate taxes to 15per cent from the current 35per cent. As the Trump administration intentions are getting clearer, automakers will be left with no choice but to modify their business and investment priorities. There’s no doubt that a major breakdown in trade relations would inflict serious damage on Mexico and the US.