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U.S. Auto Production Will Grind to a Halt if Trump Closes the Border

Industry shutdown could take as little as one week, analyst says.

BloombergWriter

U.S. auto production would grind to a halt in a week, while pork producers and dairy farmers would be shut out of their largest export market. Grocery shoppers would quickly face shortages of avocados, tomatoes, and other produce or steep price increases as supplies plummet.

President Donald Trump has been short on details about his threat to close the border with Mexico to cut off illegal immigration, and even inside the White House aides are unsure how—or even if—he'll follow through. But any move that would shut down or hinder $1.7 billion in daily cross-border trade would have far-reaching consequences for the U.S. economy.

Amid warnings from his Republican allies and his advisers, Trump on Tuesday dialed back somewhat from his threat by tweet last week to shut the border if Mexico didn't stop the flow of Central Americans heading north. He suggested the U.S. could "close large sections of the border, maybe not all of it."

But he also made clear the idea of a broader action isn't off the table. "Let me just give you a little secret: security is more important to me than trade," Trump said at the White House. "I'm totally prepared to do it. We're going to see what happens over the next few days."

Supply Chains

Analysts said a border closing would rapidly reverberate through a U.S. economy in which supply chains are closely integrated with Mexico, especially hitting the auto industry and farmers already reeling from the impact of Trump's trade war with China. Avocado prices, as one example, have already spiked.

"You can't build an auto without all the parts," said Kristin Dziczek, a vice president of the Center for Automotive Research in Ann Arbor, Michigan. "Within a shift or two we would start to see some parts shortages, and some of those parts are so mission critical we would see the entire industry shut down within a week or so."

A typical vehicle is assembled from 30,000 parts and Mexico is the largest source of foreign components for U.S. manufacturers, who have geared their production to lean inventories and just-in-time delivery. Seats, for example, often go back and forth across the border several times as they are produced in stages, said Charlie Chesbrough, a senior economist with Cox Automotive Inc., an Atlanta-based research and marketing company. "I don't see how the industry can react in any way," Chesbrough said. "You need very specific parts to go into a vehicle."

Even if the administration decides to exempt auto parts from a border closing, that would be difficult to do in practice, Dziczek said. Late Tuesday, Trump economic adviser Larry Kudlow said the administration was considering ways to limit damage, telling CNBC one idea might be to find ways to allow freight across the border to "ameliorate the breakdown in supply chains."

For American farmers and grocery shoppers, a border closing "would be disruptive really quickly," said Veronica Nigh, an economist with the American Farm Bureau Federation.

Mexico supplies more than 60 percent of all fresh produce sold in the U.S. during the winter and early spring, said Lance Jungmeyer, president of the Fresh Produce Association of the Americas, a trade association that represents importers and distributors of Mexican produce.

White House Press Secretary Sarah Sanders said Tuesday the president hasn't set a timeline for action. The president left himself an opening to retreat by saying Mexico has stepped up apprehensions at its southern border "as of yesterday."

"Let's see if they keep it done—if, if they keep doing that," Trump said.

Still, Trump's threat, and the way he made it, caused consternation among Republicans in Congress and drew derision from Democrats. "Closing down the border would have a potentially catastrophic economic impact on our country, and we would hope he would not be doing that," Senate Majority Leader Mitch McConnell said.

Wisconsin Republican Senator Ron Johnson, chairman of the Homeland Security Committee, indicated the administration hasn't given Congress any insights. "I'm not quite sure what he means by closing the border," Johnson said. South Dakota's John Thune, the second-ranking Republican in the Senate, called closing the border a "bad idea" and expressed some frustration with Trump's lack of consultations. "Obviously this is a president who sometimes tends to move on his own and then have some of those conversations later," Thune said. "That's the dynamic everybody here deals with."

But Senate Republican Lindsey Graham of South Carolina, a Trump ally, said he's "all for" closing the border if it will "compel Congress to fix the underlying problem." House Speaker Nancy Pelosi, speaking at an event in Washington Tuesday, dismissed Trump's threat to shut down the border as "an applause line, not an idea."

by Mike Dorning