President Trump made the surprise announcement last week that beginning June 10, 2019, a 5% tariff will be implemented on all goods imported into the United States from Mexico. The tariff is imminent unless concrete efforts are made to curb the illegal immigration into the U.S. If talks do not begin immediately and steps are not taken to control the border crossings these tariffs can quickly escalate. Every month that passes without changes to Mexico’s immigration policies will result in an additional 5% tariff until it reaches a cap at 25% in October.
Mexico sent the U.S. $327 billion in products last year, making them the third largest exporter of goods into our country. Their primary export is cars and car parts. The country’s second largest export is tech equipment like computers, semiconductors and software. In addition to these manufactured goods, Mexico also provided the U.S. with $6.7 billion worth of vegetables and $5.3 billion of fruits and nuts in 2018.
If negotiations fail and the tariffs go into effect on the specified deadline, some sources predict that we will see a shortage of tomatoes as early as Mid-June. Car and truck prices will most likely increase, which will be a blow to an already struggling automotive industry.
While Americans are wondering how this is going to affect the availability of their everyday goods and put a squeeze on their wallets, those in the logistics industry are wondering how much it will affect truck capacity.
With the busy Memorial Day weekend and July 4th coming up, capacity is already beginning to tighten in what has been a soft market since January. Produce is also beginning to show signs of ramping up, adding to shipper’s concerns.
If history is to repeat itself and Mexico makes a push to get goods shipped into the U.S. before the tariffs go into effect (like China did at the end of last year), we could be looking at a spike in the load to truck ratio with a noticeable decrease in capacity. A freight surge coming out of Mexico during peak produce season could have a significant impact on the U.S. supply chain, albeit temporary. As the tariffs increase by month, so may the freight volume shipping out of Mexico.
Let us hope that negotiations are successful and these tariffs become a non-issue. Since June 10 is only six days away, we won’t have to wait too long to find out.
What are your thoughts on these potential tariffs? Do you expect to have more difficulty finding trucks for your shipments or do you think it will resolve itself with little effect on the U.S. economy?