Former President Donald Trump on Monday made significant statements regarding John Deere and its plans to move some production to Mexico. Trump threatened to impose a 200% tariff on John Deere products if the company proceeds with its plan to relocate some of its manufacturing operations to Mexico. He made this announcement during a policy roundtable in Smithton, Penn., organized by the Protecting America Initiative.
Trump’s threat comes in response to John Deere’s recent announcement about moving some of its production to Mexico, which has already resulted in job cuts at certain facilities in Iowa. Trump expressed concern about the impact on American workers, stating, “It’s hurting our country. It’s hurting our workers.”
When contacted for a response, John Deere referred to a section on its website titled “Deere Commitment to U.S. Manufacturing,” which highlights its investments in American facilities and workforce. The company stated that to keep its U.S. factories focused on high-value activities, it sometimes needs to move less complex operations, such as cab assembly, to other locations.
Following Trump’s remarks, shares of Deere fell approximately 1.6% in after-hours trading shortly after the market closed on Monday.
This threat to John Deere appears to be an extension of Trump’s economic policy, which has consistently emphasized the use of tariffs. He has previously made similar threats to automakers producing vehicles in Mexico. Trump’s focus on protecting American manufacturing jobs is a key element of his campaign strategy, particularly in battleground states like Pennsylvania where he held this event.
Trump’s comments about John Deere seem to have been spontaneous, inspired by John Deere tractors displayed at the event venue. This marks the first time Trump has specifically targeted John Deere with such a threat, expanding his tariff warnings beyond the automotive industry to include agricultural equipment manufacturers.
A Look at the USMCA
Several aspects of the USMCA, negotiated by the Trump administration, help facilitate U.S. manufacturers like John Deere moving some production to Mexico:
- Duty-free access: The USMCA maintains duty-free trade between the U.S. and Mexico for most goods, allowing companies to manufacture in Mexico and export back to the U.S. without tariffs.
- Rules of origin: The USMCA has rules of origin requirements that goods must meet to qualify for duty-free treatment. Manufacturing in Mexico can help companies meet these requirements for North American content.
- Increased regional content requirements: The USMCA raises the regional value content (RVC) requirement for automobiles from 62.5% under NAFTA to 75%. This incentivizes more production and sourcing within North America, including Mexico.
- Labor Value Content (LVC) provision: The agreement requires 40-45% of auto content to be made by workers earning at least $16 per hour. This can make Mexico an attractive option for U.S. companies looking to meet this requirement while still benefiting from lower overall labor costs. While the USMCA includes stricter labor standards for Mexico, wages are still significantly lower than in the U.S. for most workers. Mexican workers often make 3-4 times less than U.S. counterparts. • Streamlined supply chains: The USMCA facilitates the movement of goods between the U.S., Mexico, and Canada by reducing trade barriers and tariffs. This makes it easier for U.S. companies to integrate Mexican operations into their supply chains.
Potential for Relocation
The USMCA rules may encourage some manufacturers to relocate certain production processes within North America to meet content requirements, which could involve significant upfront costs but potentially lead to long-term savings.
