June 5, 2018 / 12:16 AM / 2 months ago

Mexico firms eye workaround on U.S. metals tariffs; consumers in bind

MEXICO CITY (Reuters) - Mexican firms will need to cut deals with suppliers and consider buying goods elsewhere once a conflict over U.S. steel and aluminum import tariffs starts to bite, even as consumers are seen ultimately picking up the tab from any higher prices.

FILE PHOTO: A view of Ashimori Industry plant, a manufacturer and seller of automotive safety systems, inside the Santa Fe Industrial Park in Silao, in Guanajuato state, Mexico, November 8, 2017. REUTERS/Edgard Garrido/File Photo

Company executives are braced for increased costs, while holding out hope that U.S. President Donald Trump’s tariffs are more of a negotiating tactic to pressure Mexico and Canada in talks to rework the North American Free Trade Agreement.

“Of course, it’s a very serious distortion in the industry, because all the supply chains that use these types of materials are impacted every time they cross the border,” said Jose Ramon Elizondo, chairman of manufacturer Vasconia Group.

One of Vasconia’s units produces aluminum sheets, more than half of which are exported to the United States.

“We’re going to have a series of negotiations and discussions with clients who have to absorb this tax,” Elizondo told Reuters.

Japanese auto safety products maker Ashimori Industry Co Ltd, whose plant in the central city of Silao in Mexico’s automotive heartland makes seat belts and air bags for the likes of Honda, Nissan, Mazda and Subaru, is in a similar bind.

“We aren’t aluminum manufacturers but we are in the industry, so at some point we’re going to have to absorb the price increases,” said Hiroyuki Namba, president of Ashimori Mexico. “I hope the (measures) aren’t definitive.”

Critics of the U.S. move say the escalating dispute could drive firms in Mexico to buy steel and aluminum elsewhere.

“Once we hit them and close U.S. imports, we will have to source from third markets,” said a Mexican official, who asked not to be named.

Mexico’s government said it would retaliate with targeted tariffs on pork legs, apples, grapes and cheeses, plus steel.

The Mexican official said once the retaliatory measures were put in place, the situation could backfire for Trump and end up hurting American producers.

It is “economics 101 for dummies,” the official added.

Mexico expects to publish the list of specific U.S. products it will hit on Tuesday or Wednesday, the Economy Ministry said.

Trump’s tariffs are aimed at allowing the U.S. steel and aluminum industries to increase capacity utilization rates above 80 percent for the first time in years. Still, Mexico already has a trade deficit in those metals with the United States.

Alfredo Arzola, head of the automotive industry cluster in the central state of Guanajuato, said many auto parts makers in Mexico could be exempt from the U.S. tariffs because their steel and aluminum imports from the United States are temporary.

“The steel and aluminum that stays in the domestic market for sale will be affected and the (higher) prices will be passed on to the consumer,” said Arzola.

But most auto parts makers import metals to turn them into value-added products that are shipped back to the United States as part of automakers’ cross-border value chains.

If those products comply with regional content rules under NAFTA, they are exempt from the tariffs, Arzola said.

Reporting by Anthony Esposito & Sharay Angulo; Additional reporting by Noe Torres; Editing by Peter Cooney

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