#MVDNoticias 🔴Lucila Arboleya será la presidente del Laboratorio Tecnológico del Uruguay (LATU).

I’ve been running the most popular site to visualize trade data for 10+ years. Here is why I think tariffs may backfire. The first thing that everyone needs to understand is that US & Mexico aren’t just “trade partners.” They are deeply intertwined. A car made in Mexico isn’t just a Mexican car—it’s filled with US parts. And those parts cross the border multiple times. Imagine you are a car maker in Detroit. Without tariffs you would send an engine to a subsidiary in Mexico, for let’s say $100, and then sell the finished truck back in the US. Now imagine the US and Mexico introduce a 25% tariff. Your partner in Mexico now pays $125 for that engine. When it returns to the US in a truck you pay $31 more (25% of $125). All of a sudden that $100 engine paid $56 in taxes. That is almost 60% over the base price! But how will manufacturers adapt to this? Many people hope this will push companies to manufacture everything in the US. That’s certainly an option. But it’s not the only option. Another option is for Mexican manufacturers to start sourcing that engine from China, Europe, or Canada. Today China competes closely with the US in Mexico’s car part imports. Tariffs could supercharge Mexico-China value chain integration. Another option is for Mexico to use this as an opportunity to develop its car parts sector. Mexico has been a car manufacturer for a long time and can attempt to integrate the chain at their side of the border. In this scenario a Mexican made truck still has to pay tariffs in the US, but not twice for the high value added parts as in the previous case. The moral of the story is that it’s hard to predict what happens when push comes to shove. High paying consumers are in the US. But US brands have long relied on foreign suppliers to satisfy these consumers, from Phil Knight importing Japanese running shoes in the 70s to Ford and GM manufacturing SUVs in Mexico today. Tariffs can be a double-edged sword. While they aim to protect domestic industries, their ripple effects can lead to unintended consequences. Whether manufacturers adapt by reshoring, diversifying suppliers, or fostering local industries, one thing is clear: in a deeply interconnected world, the true cost of tariffs goes beyond the price tag.

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