For many years, Mexico and the United States have had an extremely stable trade alliance. In the last year alone, roughly $345 billion in United States goods were imported into Mexico while Mexico sent $265 billion worth of goods to the United States. Thanks to increasingly high Chinese tariffs, more and more American companies were working with Mexican manufacturing industries. One of the most common forms of trade has been getting raw goods from Mexico to refine them and then ship them back to sell to the Mexican public. Unfortunately, this mutually beneficial relationship seems to be coming to an end.
The current government has been threatening to increase tariffs on Mexican imports as a reaction to fears about illegal immigrants. According to Twitter posts from the president, there are plans to put a 5 percent tariff on Mexican imports by June 10 and raise it to 25 percent by October. So far, it is unclear how these tariffs would do anything to reduce illegal immigration. This plan has been met with a lot of concern from economists, with economist Katheryn Russ explaining that these tariffs would mean the United States would essentially be taxing themselves on their goods.
The oil and gas industries will be some of the hardest hit industries if these tariffs go into place. The United States currently purchases over 700,000 barrels of crude oil from Mexico each day. Just a five percent tariff would raise costs by $3 a barrel. The higher prices would hurt companies, who would most likely pass on the rise in costs to consumers. As the chairman of Mosaic Resources explains, diesel, gasoline, and jet fuel costs are all going to rise sharply.
American drivers would not be the only ones hurt by these tariffs. Mexico is likely to retaliate by putting their tariffs in place, which would make it harder for oil refineries to sell back gasoline and other products to Mexican companies. This would mean that their customer base is likely to decline, diminishing profits for American companies. There are currently 20 pipelines that send American gas into Mexico, with plans to construct more, and a tariff war is likely to halt these plans and destroy many American jobs.
About The Author
Anatoly Vanetik is a Venture Capitalist, Oil and Gas Expert, and Businessman in Orange County, California. He is the President and Chairman of the Board of Directors at Vanetik and Associates, a popular venture and consulting firm in the resource industry that Anatoly began. He brings many years of professional experience in the engineering and energy industries. Outside of his career, Anatoly Vanetik is passionate about animal welfare and art history, and maintains monthly blogs about each one.