Why Trump tariffs on Mexican cars might not work

US carmakers plan to manufacture almost 1 mn more cars in Mexico by 2022

President-elect Donald Trump says he wants automakers to build cars they sell in the US at home or pay a hefty tax. He had also called for 35% tariff on autos produced south of the Rio Grande. But US automakers Ford, GM and Fiat Chrysler are planning to manufacture almost 1 million more cars in Mexico by 2022, according to LMC Automotive, while building half a million fewer cars in the U.S. Over the past five years, several automakers have rushed to build factories in Mexico. The largest car companies have announced at least $22 billion in investments and about 25,000 jobs at new or expanded plants in Mexico by 2019. And that’s just the jobs that have been made public. Cheaper labour is only one reason. Mexico’s key advantage has been trade agreements with 44 countries, giving automakers access to half the global car market tariff-free. The US has similar trade deals with just 20 countries, according to the Center for Automotive Research in Ann Arbor, Michigan. It may be more free trade, not tariffs, that would help the US keep some factory jobs from moving south. A quick look at what drives automakers to Mexico:

Source: Bloomberg