Trump Is Right — Mexico Is Ripping Us Off On Trade

Brian Twomey Professor
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Currently nine major automobile companies manufacture vehicles in Mexico as follows: Fiat, Chrysler Auto of  Mexico, Ford, GM, Sling, Kia, Mace, Nissan, Toyota and Volkswagen. Sling is classified by the  Mexican Automobile Industry Association as an exporter of autos and trucks but the predominant manufactured product are  three-wheeled vehicles.  FCA Mexico manufactures Ram, Jeep, Fiat, Chrysler, Alfa-Romero and Dodge.

Total Mexican exports to the United States in automobiles and trucks by all 9 auto companies in 2015 was  1,919,680 and 1, 985, 944 for 2016. Autos accounted for 1,020, 755 V 965, 189 trucks. To place 1.9 in perspective, total Mexican exports worldwide for 2015 in cars and trucks for all 9 companies was 2,328, 448  and 2,306, 293 for 2016. Since 2014, total United States vehicle sales to include cars and trucks averaged about 17 million per year as a seasonally adjusted annual rate. Since 2000, the seasonally adjusted annual rate ranged from  12.5 to 17.5  with a spike low at 9.2 million in February 2009. The National  Automobile Dealers Association forecasts 17.1 million for 2017.

NADA further reports for the first 6 months of 2016, new vehicle sales in the US accounted for $490 million and 8.64 million sales of light duty vehicles. Light trucks will account for 60% of the total American market based on NADA estimates.

The Congressional Research Service in its November 2016 report on US / Mexico Economic Relations states, Mexico imported $30.5 billion in vehicles in 2011 and $50.5 billion in 2015. Imported Automobile parts in 2011 represented 28.5 billion and 43.7 billion in 2015. Automobile and Truck engines account for the vast majority of parts.

The clear winners in exports to the United States are FCA Mexico, Ford and GM particularly FCA and GM in truck exports as both accounted for 731, 590 of the total 965, 189. Nissan and Toyota exported 347,329 automobiles and 100, 829 trucks. Sling, Kia and Mace hardly register while Volkswagen exported 195, 577 automobiles and is not active in the truck market.

Despite 1.9 million vehicles and a small aspect to the American market, standards to import to the United States must meet safety, bumper, emission, theft and air pollution requirements therefore a valid assumption regards the manufactured vehicles are designed for specific export to the United States. The remaining 320, 349 vehicle exports for 2016 to subtract total from US are sent primarily to South America. Mexico’s predominant export market is the United States.

Fees to import into the United States are charged a Duty of 2 to 5% for autos, 25% for trucks and 3 to 3.4% for motorcycles. Duty rates are based on prices paid. Vehicles must meet an EPA  Fuel Economy rating of 22.5 miles per gallon or vehicles are charged a Gas Guzzler Tax.

Imports into Mexico must pay a duty fee, state and federal taxes, Custom Processing fees and Value Added taxes. The average Duty rate for vehicles less than five years old is about 16% based on “Blue Book” values. The average Duty rate on other products especially NAFTA approved items is about 13.97%. A VAT tax is assessed based on sales transactions. Within the Mexican border, a fee is assessed at 11% and 16% inside  Mexico’s interior.

The United States Trade Balance with Mexico was negative every month since January 1994 when a positive trade balance of $302.8 million was reported. Since 1985, the only positive trade balance was reported in years 1991, 1992 and 1993. The remaining months since 1985 was negative.

President -elect Trump’s argument is trade is unfair, deals are bad and “they’re ripping us off.” If the United States-Mexico automobile trade arrangement is any guide, Trump’s argument is correct.

Brian Twomey is a 20 year college professor of Political Science, brian@btwomey.com