Mexico firms eye workaround on U.S. metals tariffs; consumers in bind

Ashimori Industry Co

05/06/2018 13:00

(Repeats with no change in text)
    By Anthony Esposito and Sharay Angulo
    MEXICO CITY, June 4 (Reuters) - Mexican firms will need to
cut deals with suppliers and consider buying goods elsewhere
once a conflict over U.S. steel and aluminum import tariffs
starts to bite, even as consumers are seen ultimately picking up
the tab from any higher prices.
    Company executives are braced for increased costs, while
holding out hope that U.S. President Donald Trump's tariffs are
more of a negotiating tactic to pressure Mexico and Canada in
talks to rework the North American Free Trade Agreement.
    "Of course, it's a very serious distortion in the industry,
because all the supply chains that use these types of materials
are impacted every time they cross the border," said Jose Ramon
Elizondo, chairman of manufacturer Vasconia Group  VASCONI.MX . 
    One of Vasconia's units produces aluminum sheets, more than
half of which are exported to the United States.
    "We're going to have a series of negotiations and
discussions with clients who have to absorb this tax," Elizondo
told Reuters.
    Japanese auto safety products maker Ashimori Industry Co Ltd
 3526.T , whose plant in the central city of Silao in Mexico's
automotive heartland makes seat belts and air bags for the likes
of Honda, Nissan, Mazda and Subaru, is in a similar bind.
    "We aren't aluminum manufacturers but we are in the
industry, so at some point we're going to have to absorb the
price increases," said Hiroyuki Namba, president of Ashimori
Mexico. "I hope the (measures) aren't definitive."
    Critics of the U.S. move say the escalating dispute could
drive firms in Mexico to buy steel and aluminum elsewhere.
    "Once we hit them and close U.S. imports, we will have to
source from third markets," said a Mexican official, who asked
not to be named.
    Mexico's government said it would retaliate with targeted
tariffs on pork legs, apples, grapes and cheeses, plus steel.
    The Mexican official said once the retaliatory measures were
put in place, the situation could backfire for Trump and end up
hurting American producers.
    It is "economics 101 for dummies," the official added.
    Mexico expects to publish the list of specific U.S. products
it will hit on Tuesday or Wednesday, the Economy Ministry said.
    Trump's tariffs are aimed at allowing the U.S. steel and
aluminum industries to increase capacity utilization rates above
80 percent for the first time in years. Still, Mexico already
has a trade deficit in those metals with the United States.
    Alfredo Arzola, head of the automotive industry cluster in
the central state of Guanajuato, said many auto parts makers in
Mexico could be exempt from the U.S. tariffs because their steel
and aluminum imports from the United States are temporary.
    "The steel and aluminum that stays in the domestic market
for sale will be affected and the (higher) prices will be passed
on to the consumer," said Arzola.
    But most auto parts makers import metals to turn them into
value-added products that are shipped back to the United States
as part of automakers' cross-border value chains.
    If those products comply with regional content rules under
NAFTA, they are exempt from the tariffs, Arzola said.

 (Reporting by Anthony Esposito & Sharay Angulo; Additional
reporting by Noe Torres; Editing by Peter Cooney)
 ((anthony.esposito@thomsonreuters.com; +5255 5282 7140; Reuters
Messaging: anthony.esposito.thomsonreuters.com@reuters.net))