2021 Ford F-150 Lordstown Endurance 2021 Ford Bronco COVID-19 and automakers iRacing PC 2020 electric vehicles Best car lease deals Best car insurance

Trump's Mexican tariff threat causes concern for car companies, report says

Even the starting 5% tariff would do damage to an industry with thin margins and fierce competition.

President Trump is threatening to levy a tariff of up to a 25% on all goods from Mexico, and this is causing automakers to panic.

Getty Images

Automotive tariffs have been in the news quite a bit over the past few months, but those have mostly related to China, and that's caused plenty of hiccups for the global automotive industry.

Now though, things are getting really real because the Trump administration is going after Mexico. Specifically, Trump is calling for a 5% tariff on all goods coming from Mexico, one that would increase until hitting a ceiling of 25% in October. Why is he doing this? Illegal immigration -- or at least that's what he's saying, according to a report published Friday by Reuters.

This 5% tariff would drive prices up on a massive number of goods, ranging from Mexican Coke and Topo Chico to nuclear reactor parts and cars built by companies like Ford and even vehicles from German and Asian manufacturers like BMW, VW and Toyota. Some estimates suggest that this tariff would boost US car prices by over $1,000 per unit.

Given the fragile state that the American automotive market is in right now, it's unlikely that manufacturers could realistically pass that extra cost onto customers without suffering further drops in sales. That means the companies would have to eat the cost and cut their thin margins even thinner.

Trump's threats have caused stock prices to slip for auto manufacturers from all over the world. In Japan, Mazda's stock dropped by 7%, while Nissan dropped by 5%, Honda by 4% and Toyota by 2%. In Korea, Kia's shares declined by 4.2% and Hyundai slipped by 0.7%. The Germans' stock fell by as much as 2.9%.

Mexico's automotive industry is massive, and the bulk of it feeds the American market. According to Reuters, cars and car parts are Mexico's most significant export, with a value totaling $93.3 billion in 2018.

Now playing: Watch this: AutoComplete: Chinese tariffs on US vehicles going away,...
1:21