By Mike Colias, Bradley Olson and Paul Ziobro 

President Trump's plan to impose escalating tariffs on Mexican imports threatens to increase costs for auto makers, raise prices at the gas pump for American consumers and disrupt shipments between the two countries.

The auto industry faces the greatest impact, as more than $125 billion worth of vehicles and car parts were imported from Mexico last year. Other affected industries include food, energy and electronics.

General Motors Co. is among the most exposed to fresh tariffs. GM sold about 663,000 Mexico-built vehicles in the U.S. last year, or 22% of its domestic sales, according to an estimate from research firm LMC Automotive. GM shares fell 4.3% Friday.

About 18% of Fiat Chrysler Automobiles NV's U.S. sales were imported from Mexico last year, including about a quarter of its profitable Ram pickup trucks. Ford Motor Co.'s Mexican imports accounted for about 10% of U.S. sales, according to LMC.

The three auto makers declined to comment Friday.

Foreign auto makers that opened Mexican plants to supply their U.S. dealerships would be hurt by fresh tariffs. For example, nearly half of Volkswagen AG's U.S. sales last year were imported from Mexico, according to LMC.

"We believe tariffs of this kind are a tax on the U.S. consumer and will result in higher prices and also threaten job growth," a spokesman for Volkswagen said.

Mexico, meanwhile, accounted for 9% of U.S. crude imports last year, the highest share after Canada and Saudi Arabia. Imports from the country have grown more vital for refiners of gas in the past year after the U.S. imposed sanctions on Venezuela and after Canada curbed production.

"The implication of [the tariffs] would be less gasoline produced, and prices would increase at the pump," said Sandy Fielden, director of oil research at Morningstar Inc.

Refiners such as Valero Energy Corp., Phillips 66 and Marathon Petroleum Corp. would face significant challenges should Mexico counter with a tariff on their exports of gasoline and distillates such as diesel fuel, analysts said.

The threatened tariffs would deliver a blow to consumers and sellers of computers and other electronics.

Many tech manufacturers have established assembly operations in Mexico in recent years. In 2018, 76% of the desktop personal computers and servers imported into the U.S. arrived from Mexico, along with 62% of television sets, according to the Consumer Technology Association, which represents more than 2,200 tech firms. The group says Mexico represents the industry's biggest export market, with $41 billion of U.S. consumer tech goods exported there in 2017.

Also affected are transportation companies, which have spent billions of dollars upgrading cross-border infrastructure to ferry the products imported from Mexico.

Kansas City Southern operates a network of track called the Nafta Railway that can shuttle goods from Mexican factories and ocean ports to as far north as Memphis, Tenn., bypassing congested U.S. West Coast ports. It carries commodities such as corn and U.S. natural gas south into Mexico.

Kansas City Southern said it "is aware of the President's tweet yesterday but is not able to estimate what impact such action might have on the flow of its cross-border freight." Shares of Kansas City Southern fell 4.5%.

Union Pacific generated $2.5 billion last year in freight revenue from Mexico, nearly 12% of its overall freight revenue. Union Pacific is the only railroad that serves all six major rail gateways to Mexico. It declined to comment.

Farm groups warned the White House against proposed new tariffs on Mexico, predicting they could trigger retaliatory trade actions from Mexico and impede exports to one of the top markets for U.S. crops and meat.

"American pork producers cannot afford retaliatory tariffs from its largest export market," said David Herring, president of the National Pork Producers Council.

The trade group estimated that tariffs over the past year from Mexico and China have so far cost U.S. pork producers $2.5 billion.

Constellation Brands Inc., controlling one of Mexico's best-known exports, Corona beer, saw its stock decline 5.8% Friday.

Corona and the company's other beer brands, nearly all of them imported, account for 75% of Constellation's annual sales, Morgan Stanley analyst Dara Mohsenian said. The company's Mexican imports include Pacífico and Modelo Especial beers as well as Casa Noble tequila.

Constellation has invested in Mexico since taking over U.S. distribution of Corona and Modelo from Anheuser-Busch InBev in a $5.3 billion deal in 2013. The company has bought a second brewery in Mexico and is building a new $1.4 billion brewery. Constellation didn't respond to requests for comment Friday.

Heineken NV imports Tecate and Dos Equis from Mexico, and those brands account for 45% of the company's U.S. volume, according to Bernstein analysts. The profit impact, however, would be less because those beers are sold at a lower price than the brewer's European imports.

The proposed tariffs could mean fresh challenges for small companies, such as Duraflow Industries Inc., a manufacturer of air filters for home furnaces and kitchen stove range hoods.

About 40% of Duraflow's filters are produced by a contract manufacturer in Mexico to take advantage of lower labor costs. "If this is a 5% tariff on the invoices that come across the border, that's a straight hit to the bottom line," said Duraflow Chief Executive Mark Sliman, who has seven employees and about $1 million in annual revenue.

Instead of raising prices, he plans in the short run to add a tariff surcharge that can be increased, decreased or removed.

--Jennifer Maloney, Sebastian Herrera, Adrienne Roberts, Jacob Bunge, Jesse Newman and Ruth Simon contributed to this article.

Write to Mike Colias at Mike.Colias@wsj.com, Bradley Olson at Bradley.Olson@wsj.com and Paul Ziobro at Paul.Ziobro@wsj.com

 

(END) Dow Jones Newswires

May 31, 2019 20:12 ET (00:12 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.
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