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Investing.com - U.S. President Donald Trump’s decision to move ahead with steep 25% tariffs on imports from Canada and Mexico poses a "significant" threat to the American automotive industry, according to analysts at Bernstein.
On Monday, the levies, which include a 25% fee on all imports incoming from Mexico and non-energy goods from Canada, were "all set" to go ahead, Trump said. A 10% surcharge will be collected on Canadian energy as well.
America’s southern and northern neighbors had earlier raced to appease Trump’s call for increased border security to help stem the flow of the illegal drug fentanyl and migrants into the U.S. Concessions offered in February led to a month-long postponement of the duties.
However, Trump said the countries had still not done enough to address his demands, adding that there was "no room left" for a deal to be secured. China had also not taken "adequate steps to alleviate the illicit drug crisis," Trump said.
Economists and company executives have long argued that the tariffs on Canada and Mexico -- which make up $900 billion in annual U.S. imports -- threaten to upend a deeply-integrated North American economy. Along with China, Canada and Mexico account for more than 40% of total U.S. imports.
The auto industry is bracing for a sharp, albeit temporary, impact from the duties on Canada and Mexico, the Bernstein analysts said.
"Our analysis indicates that this poses a significant downside risk for the entire U.S. automotive sector," the analysts led by Daniel Roeska wrote in a note to clients. "Unless there is a swift policy reversal, we anticipate severe disruptions in North American supply chains and automotive profit margins."
U.S. carmakers, including General Motors (NYSE:GM) and Jeep-owner Stellantis (NYSE:STLA), operate plants in both Mexico and Canada. Ford (NYSE:F) also has factories in Mexico, with about 90% of the exports from the country going to the U.S., Reuters reported, citing data from Mexico’s AMIA showed.
In the short term, the American car industry could face headwinds of up to $110 million per day, Bernstein estimated, adding that the full-year impact would be as much as $40 billion should trade flows remain unchanged.
Still, moves by automakers to build up inventories, reallocate production and reduce exports from Mexico prior to the imposition of the tariffs could limit their damage, the brokerage noted.
Shares in U.S. automotive stocks logged modest declines on Monday, which the Bernstein analysts said reflected "market optimism for a rapid policy change" in Washington.