I find it hard to see that there will be a 25 percent tariff directed towards Mexico, he says to TT.
Hampus Engellau, who monitors the automotive sector on behalf of Handelsbanken, was recently in both the USA and Mexico. He points out that Mexico has long been an integrated part of the USA's automotive industry and a strategic alternative for car giants to keep labor costs down.
As an example, Engellau mentions American General Motors, which manufactures around 2.7 million cars annually. Of these, around 80 percent are produced in Mexico and thus GM would also be radically affected by Trump's decision.
This therefore hits the American automotive industry directly. I may be naive, but it's so incredibly complicated, he says about the USA holding on to the tariffs.
Complicated manufacturing
The automotive industry is special in that manufacturing takes place in different stages at different locations. A car intended for the American market can therefore be transported several times across the border before it reaches the market.
Before it reaches the consumer, it may have crossed the border seven times, should there then be customs duties seven times, asks Engellau.
The industry company Cox Automotive estimates that the cost per manufactured car will increase by 6,000 dollars, approximately 60,000 Swedish kronor, writes Wall Street Journal. In the end, it is also the consumers who will have to take a large part of the blow, notes Engellau.
If there is a 25 percent higher price tag, you wait to buy a new car, he says.
In the short term, this will freeze the market with a generally weaker demand and 10-15 percent lower sales, he continues.
Falls sharply
From a Swedish perspective, it is primarily Volvo Cars that could be practically affected, even though the company now has some production in Charleston, USA. The stock also falls sharply on the Stockholm Stock Exchange, in line with other automotive stocks around Europe.
Peter Bryntesson, CEO of the Automotive Component Group (FGK), sees how this can also have consequences far beyond Mexico's and the USA's borders.
The automotive industry is so incredibly integrated globally and it affects the economy. It can drive inflation and also unemployment in Europe, and even we in Sweden are affected, he says.
