President-elect Donald Trump’s repeated attacks on Mexican auto imports has collapsed the peso — which has ironically made Mexico a more inviting location for American manufacturers.
Trump has repeatedly warned automakers they could be hit with a 35 percent tariff on imports, but some observers believe such threats could actually make it more attractive to invest south of the border.
Several high-level auto industry officials told NBC News that a sharp slump in the price of the peso could more than offset any import tariffs, leading them to consider new Mexican manufacturing options.
The unexpected consequence was highlighted by former U.S. Treasury Secretary Lawrence Summers during a speech on Wednesday at the World Economic Forum in Davos, Switzerland.
“The decline in the peso is a dagger at Ohio,” said Summers, who served in the Clinton administration from 1999 through 2001. “It is a major change in the relative attractiveness of locating production activity in Mexico versus locating it in the American heartland.”
A Weak Peso Could Offset Trump’s ‘Border Tax’
Almost from the moment he entered the 2016 president campaign, businessman-turned-politician Donald Trump has criticized the automotive industry for investing in Mexico, a country now among the world’s five largest auto producing nations. Initially, the focus was on Ford which, last April, said it would move its small car production to Mexico. But in recent weeks, the president-elect has also targeted such manufacturers as Toyota, BMW and General Motors.
The threats have wreaked havoc on the Mexican economy. And the peso has collapsed. It is currently trading at nearly 22 to the American dollar, compared to 18 on election day. And that was already down sharply from the beginning of the year, as Mexican trade became an election hot-button issue.
“Compared to when we built our (last) plant in Mexico,” the peso has fallen by almost half,” said a CEO of a major foreign automaker’s U.S. operations. “It makes me think about the opportunity of adding more there,” he said, noting that, “this would probably offset any tariff they might impose.”
Several other senior industry executives with foreign-owned and Detroit-based carmakers said they also need to be considering the economics of Mexican operations, adding that if the peso continues to weaken, the country will retain its economic advantage, especially with reduced labor costs.
That is a case of unintended consequences, former Treasury Secretary Summers added. “And the consequence of that is measured not in the dozens, or hundreds but in the thousands, or ten thousands or even hundreds of thousands of jobs.”
Read more of the original article at NBC NEWS.
