Motor vehicles, energy and the other parts of industry in the line of fire from USMCA tariffs

The potential damage to large swathes of industry in Mexico and Canada from blanket US tariffs could be devastating and significantly greater than the impact on GDP as a whole.

What you will learn:

• Many industries in the US’s trade partners are highly vulnerable due to deeply intertwined supply chains and high export dependence on the US. The US, on the other hand, is more vulnerable in individual sectors: industrial activity is far less dependent on its neighbours.
• Mining, motor vehicles, basic metals and machinery stand out as most vulnerable in Canada while machinery, electricals, transport equipment and high-tech stick out as being in the crosshairs in Mexico. The value of these industries’ exports to the US may represent a huge chunk of total sectoral gross output (essentially sales), but for the most part is unimportant enough to the US to represent a juicy target for targeted tariffs.
• The automotive sector stands head-and-shoulders above all others in terms of US industries most vulnerable to a sudden price spike for inputs from Canada and Mexico and potentially the other way around. Another key channel of vulnerability is through energy: a large proportion of US crude oil imports which go on to be refined domestically comes from Canada.
• Mexico faces another major challenge: a rising commercial relationship with China, taking the form of both higher intermediate goods imports from China and investment in manufacturing facilities by Chinese firms within Mexico. This kind of investment is very likely to be an additional target for President Trump, representing a conundrum for Mexican policymakers.

For more insights on the Economics of Trump 2.0​, click here.