Trump’s tariffs to hit Mexico’s car factories

SAN LUIS POTOSÍ, Mexico — Until a few years ago there was not much in this patch of desert 250 miles north of Mexico City but rattlesnakes, coyotes, and cactus. Today, it is gleaming evidence of the country’s growing importance as an auto producer.

In 2019, BMW completed a vast factory complex here, near the city of San Luis Potosí. As spotless and modern as any in Bavaria, the plant builds luxury sedans for the United States, Europe, China, and dozens of other markets.

San Luis Potosí is one of several Mexican cities that have become little Detroit, producing Volkswagens, Audis, Mercedes, Fords, Nissans, and Chevrolets. In the first nine months of this year, Mexican factories produced more than 3 million vehicles, of which 2 million were exported to the United States, according to the Mexican Automobile Industry Association.

But Mexico’s pivotal role in the global auto industry is now at risk. President-elect Donald Trump has threatened to impose punitive tariffs of 100% or higher on cars from Mexico, which would violate a trade agreement his first administration negotiated with Canada and Mexico.

The consequences for the auto industry would be profound, affecting the price in the United States of popular models like Ford Maverick pickups, Chevrolet Equinox SUVs, and several variations of Ram trucks.

Trump has said the tariffs would encourage more automotive manufacturing in the United States. BMW executives say that the tariffs would hurt their business but that the plant in San Luis Potosí would still make financial sense for the company because so many of the cars produced there are sold in other countries.

However, the tariffs could severely disrupt suppliers, forcing them to move production between countries, which could lead to job losses and financial turmoil. The BMW factory in San Luis Potosí has 3,700 employees.

“If you torpedo the agreement, you’re going to create more unemployed Mexicans, and what are they going to do?” said William Alan Reinsch, a senior adviser at the Center for Strategic and International Studies who specializes in trade issues.

Trade barriers might also be a setback for the already slowing electric vehicle business. Ford produces its battery-powered Mustang Mach-E at a factory near Mexico City. Chevrolet produces electric versions of the Equinox and Blazer SUVs near Monterrey.

Even Tesla, which is led by one of Trump’s biggest supporters, Elon Musk, could feel the effects. The company bought land in Monterrey to build a car factory in order to produce affordable vehicles, though that project is on hold, local officials say.

The BMW complex in San Luis Potosí shows what is at stake for automakers. Last month, construction crews swarmed around freshly erected steel girders, the skeleton of a new building where battery modules will be assembled for the German company’s electric vehicles. BMW will produce those cars in San Luis Potosí beginning in 2027 and export them to the United States and elsewhere. The factory produces BMW 2 Series and 3 Series sedans.

The city of San Luis Potosí, a sprawling jumble of cinder-block and brick buildings, doesn’t exactly scream “high-tech manufacturing hub.” Makeshift taquerias crowd the shoulders of the highway that leads to the BMW complex. The road is lined with corrugated metal factory buildings, many of which churn out auto parts. Like many Mexican cities, San Luis Potosí has suffered drug cartel violence.

But BMW executives said that Mexico offered a deep pool of well-educated workers and suppliers. “You don’t only have skilled workers, but you have very motivated workers,” Ilka Horstmeier, a member of BMW’s management board whose responsibilities include labor relations, said during an interview in San Luis Potosí.

Mexican suppliers are able to fulfill the demands of BMW’s tightly choreographed manufacturing operation, delivering parts like bumpers, axles or seats just four hours before the parts are installed in cars, said Oliver Haase, a senior vice president who oversees the company’s supply network in North America and South America.

Mexican suppliers are held to the same standard as those in Europe, the United States, or Asia, Haase said. If he was led blindfolded into a Mexican parts factory without knowing where in the world he was, “I could not tell you,” he said.

The San Luis Potosí plant is highly automated, with armies of orange robots welding body frames together amid showers of sparks. However manual labor still plays a role. On the assembly line, workers in blue uniforms thread bolts by hand to connect front hoods to their hinges.

Trade barriers could disrupt a supply chain that also benefits the U.S. economy. Many of the parts used in BMWs and other Mexican-made cars come from the United States. Batteries for the new BMW electric cars will come from a factory in South Carolina that also supplies the company’s plant in Spartanburg, South Carolina.

Labor representatives in the United States, who have pushed for higher tariffs, complain that Mexico’s lack of worker protections is one reason for its appeal. Traditionally, Mexican unions have answered to management and government officials rather than workers.

The first Trump administration pursued policies that many labor experts said had hurt workers and unions. But the administration’s officials did push for provisions in the United States-Mexico-Canada trade agreement, known as the USMCA, that required Mexico to make it easier for workers to form independent unions.

Mexican labor leaders have used the reform to organize autoworkers at companies like General Motors and Goodyear, which has a large tire factory in San Luis Potosí.

“The law gives us tools to organize for better conditions,” Pablo Franco, a lawyer who represents La Liga Sindical Obrera Mexicana, an independent labor group, said in an interview at a hotel in San Luis Potosí where he and other labor representatives were meeting with Goodyear executives.

But Franco also complained that the government had not done enough to ensure that workers were aware of their rights. Workers at most companies, including BMW, are not represented by independent unions.

The penalty for not complying with the provisions of the USMCA is small. BMW and other companies that do not meet all of the terms of the agreement, including those related to unions and where they buy parts from, pay a 2.5% tariff to export vehicles to the United States.

Lately, Chinese automakers including BYD have been scouting locations in Mexico with an eye toward establishing a presence in Latin America and, eventually, the United States. Many were waiting for the outcome of U.S. elections before deciding whether to build plants in Mexico, local officials say.

In theory, factories in Mexico could give Chinese carmakers an entree to the United States. Punitive tariffs and other restrictions effectively ban cars made in China from the United States. But it is unlikely the Trump administration would allow Chinese companies access to the United States so easily.

Mexican officials are courting Chinese investors, but they are also mindful that the United States is Mexico’s largest trading partner by far.

The United States, Mexico, and Canada are scheduled to review the USMCA in 2026 and decide whether to extend the treaty.

“We are going to be very respectful of the commercial agreements we have with the United States and Canada,” said Walter Ángel, who oversees Mexico’s energy regulator and is involved in efforts by the government to promote electric cars. He added, “We are going to review the treaty, but we are not going to renegotiate the treaty.”

Representatives for Trump did not respond to a request for comment.

BMW executives said the factory in San Luis Potosí made business sense no matter what officials from the three countries decide. They point out that much of the plant’s output goes to Brazil, other Latin American countries, and China. All of the two-door versions of the BMW 2 Series coupe sold in Europe are produced in San Luis Potosí. Mexico has free-trade agreements that allow manufacturers to export their products to 50 countries at low or zero tariffs.

“Our decision on where we build plants is a long-term strategic decision made for at least 40 years,” Horstmeier said. But she added that the company much preferred open borders. “Whenever you put up trade barriers,” she said, “you harm yourself.”

This article originally appeared in The New York Times.