Tariffs – Industry Booster or Shot in the Foot?

At the recent SMTAi conference in Rosemont, Chicago there were some interesting discussions around the topic of tariffs.
Originally designed to level the playing field and attract more manufacturing jobs back to the United States, there is some debate as to whether they are actually achieving this goal.

Undoubtedly, there is plenty of evidence to support the fact that companies are moving back, expanding and working at close to capacity, but this is the result of the many other incentives implemented by the current administration, such as tax cuts, repatriation amnesty and a huge reduction in burdensome red tape and outdated legislation.

In the short term, it appears the biggest winners in this dispute could be Mexico. Virtually all components within a printed circuit assembly originate from China and until the new USMCA trade agreement is ratified by congress in Canada, Mexico and United States, it appears that it may be less expensive to import the many components required in electronics assemblies to Mexico and assemble them, before shipping one final assembly to the United States.

The ink is far from dry on this new treaty. Even after it has been ratified by the respective houses of all three countries, experts do not expect it to be implemented before 2020.

Of course, once the treaty is ratified, the game changes considerably. 75% of all automotive assemblies must be manufactured in Canada, Mexico or United States to escape punitive taxes. Furthermore, the USMCA mandates that 40 to 45 percent of automobile content is made by workers earning $16 per hour or more. This will level the playing field with US and Canadian workers.

However, the bulk of automotive manufacturing is likely to stay in Mexico as long as it enjoys a free trade agreement with Europe, Japan, Australia and most of its Caribbean and South American neighbors.

The ink is far from dry on this new treaty. Even after it has been ratified by the respective houses of all three countries, experts do not expect it to be implemented before 2020.

– Trevor Galbraith
Editor-in-Chief
editor@globalsmt.net

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