LMCA Client Alert: Trump Trade Policy
Potential Vehicle Assembly Exposure and Risk in North America
Manufacturing in Mexico, Canada, or outside the US in general, has come under threat from the incoming Trump Administration. Since the campaign, Donald Trump has said that a border tax would be in place for imported vehicles, although the tax has never been quantified. Furthermore, NAFTA could be at risk.
The US currently accounts for two thirds of North American vehicle production but significant investment plans and decisions to re-source capacity from Asia and Europe to Mexico are expected to bring Mexican production from 19% of NAFTA today to 26% in 2020.
The potential for penalty on vehicles manufactured within NAFTA but outside the US may impact existing vehicle sourcing and future NA production mix and vehicle decisions, many of which are already in process. Until specific policy is detailed, the environment is fluid and uncertainty remains high, as the industry plans for the future. Aversion to policy risk, and to the threat of negative publicity, has become a significant consideration for planners.
While sourcing changes to the US have been announced by several manufacturers, further production shifts from Mexico, Canada or elsewhere, to the US are possible. We expect manufacturers to continue to publically announce investment plans in the US even if they are not directly linked to the election.
Ultimately, any sourcing change would bring disruption to the supply chain. Component manufacturers have either heavily invested or planned large investments in Mexico based on sourcing requests and decisions from the vehicle manufacturer that have announced new capacity.
The key will be for OEMs and suppliers to have proactive plans that identify potential program risks, identify capacity exposure, and develop contingencies to help reduce the impact of policy changes going forward. The following alert helps identify which OEMs are at most risk for sourcing changes given these potential challenges.