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Free Trade In Mexico Essay

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Apart from Canada and China, Mexico is the third-largest exporter of goods to America; while America is in the process of imposing 20-25 percent tariff upon the goods imported from Mexico, specifically the automobiles. There are a number of analysts which state that this decision will not only increase the car prices, but also the auto-makers might lose their customers, or they need to move their production plants in the United States, as stated by the President Donald Trump, in order to get themselves exempted from the high percentage of tariffs. Moreover, Mexico is offering cheap labor along with free-trade deals with some markets as the free trade agreements of the country covers around 45 countries which attracts the automakers towards the very country (Tribune News Services, 2017)
Evidence
According to the Center for Automotive Research, Michigan, automakers made an investment of around $24 billion in Mexico within the last six years. Although, the auto sector of Mexico is smaller than the United States, but it is increasing its production capacity at a faster pace. …show more content…

The rising tariffs on the cars will add into the price of those vehicles imported. Moreover, as mentioned above, most of the firms in the United States doesn't manufacture every part of the car but import a certain percentage, and high tariffs will affect the supply chain which will result in an increment in the production cost as well. For instance, on average 1.2% of steel is used to manufacture a car, but the tariffs imposed on steel will increase the price of the American-made vehicle between 0.5 and 0.8 percent which will result in a decline of sales (Steil & Rocca, 2018). An increment in the price will lower the quantity demanded, as per the law of demand which will decrease the sales, ultimately. The consumers are less likely to purchase imported vehicles at higher prices instead they would prefer the domestic

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