June 6, 2019: Donald Trump’s tariffs on Mexican lead batteries into the US could ultimately be good news for US battery makers — if they can source enough refined lead, says principal analyst on lead for Wood Mackenzie, Farid Ahmed.
The US administration is to put 5% on Mexican goods, including lead batteries, on June 10. The tariffs will increase to 25% by October 1 unless Mexico halts the flow of illegal immigrants to the US, Trump has said.
“The preliminary 5% rate will probably not have too much effect — although it will be the American consumer that ends up paying it,” he said. “However, as the rates get ratcheted up with each successive month, Mexican batteries will lose their price advantage and export volumes will drop.
“It should follow that the US domestic scrap market will ease somewhat if Mexican plants are throttled back and need less scrap. However, these effects may not take hold until the latter part of summer — traditionally when battery factories ramp up production to build stock for the winter peak demand season.”
Ahmed says the US imported almost 20 million lead batteries from Mexico last year, many of which were made by recycling American scrap batteries in large facilities in the north of Mexico.
However, in the past few days the price of lead has spiked, he said, due to supply fears from low stocks and news of an outage at a major lead smelter, halting operations.
“If the lead price spike becomes a sustained rally, it could quickly lead to a tight supply of refined lead and increased activity from overseas buyers exporting US scrap to Asia. These elements could easily combine to restrict lead supply and, consequently, battery production in the US,” he said.
North America’s auto agencies have criticized the 5% tariffs.
In November 2018, the US, Mexico and Canada agreed — but did not ratify — a free-trade agreement to replace the North American Free Trade Agreement, and ‘create more balanced, reciprocal trade that supports high-paying jobs for Americans and grows the North American economy’.
The new tariffs appear to fly in the face of any new agreement.
The US is the second largest car manufacturer in the world and home to most major vehicle manufacturers, the country produces an average of 11 million passenger cars a year.
Total battery imports from Mexico were over $900 million last year.
Car companies contacted by BESB claimed they could not comment on the specific issue of batteries for ‘competitive reasons’, however Han Tjan, head of corporate communications at Daimler, said: “Being a globally active company, Daimler welcomes trade agreements that reduce trade batteries and promote free and fair trade. Free trade and investments are key factors for innovation, employment, growth and prosperity.
“In this context, companies depend on reliable framework conditions, transparency and predictability to make long-term investments. Trade disputes always entail uncertainties, both for companies and for customers.”
The Alliance of Auto Manufacturers, an advocacy group for the US auto industry, said: “Unfortunately the US Department of Commerce is considering placing tariffs on imported autos and auto parts.
“While the officials considering this move have America’s best interest at heart, we are afraid that these proposed tariffs could result in a de facto tax for American consumers who will be forced to pay more when they purchase new vehicles or visit their mechanics.
“Remember, free and fair trade helped the economy rebound after the recession, pushing automotive production to near record levels. Because of this success, we have added $953 billion to the economy each year and helped keep 7.2 million Americans employed.
“But after years of unprecedented straight growth, sales have been levelling off and potentially making the economy more fragile. We do not want to turn the clock back on our progress, and that’s why our industry needs free and open trade — now more than ever.”
American Automotive Policy Council president Matt Blunt said: “The imposition of tariffs against Mexico will undermine its positive impact and would impose significant cost on the US auto industry.”
“Added to the mix are the new vehicles imported from into the US from Mexico, which last year totalled some 3 million,” said Ahmed. “Almost all of these would have contained a lead battery made in Mexico. If the tariffs start driving US consumers away from Mexican-made new car purchases, then this would add to the pain of the Mexican battery industry.
“The consequences of the tariffs could be significant, but it is still too early to predict who will suffer the most.”
In May, Washington slapped 25% on $200 million of Chinese goods, including lead acid batteries.
China was exporting 200 million lead batteries a year to the US before the tariffs were introduced, accounting for 12%-20% of the total, according to the Shanghai Metals Market.