California Governor Gavin Newsom thought he’d delivered a clear expertise manufacturing boon to his state with a brand new four-year memorandum of understanding (MOU) with Alfonso Durazo Montaño, the governor of Sonora, Mexico.
Then President Donald Trump introduced rounds of tariffs.
To say the story continues to be creating is an understatement, however the way it does will matter a terrific deal to a terrific many individuals and companies on each side of the border.
Right here’s what we all know to date.
That was then
Signed on March 18, the settlement is an try to supply provide chain and clear vitality stability for California, Mexico and their personal sectors. It incorporates provisions that encourage collaboration on:
- Renewable vitality effectivity
- Electrical system reliability and markets
- Electrical mobility
- Clear and renewable hydrogen
- Provide chain growth, and
- Supporting analysis and growth.
“The memorandum exhibits potential exists,” stated Richard Kiy, president and CEO of Institute of the Americas. “Sonora’s purpose is to have the ability to finance as much as 4 gigawatts of renewable vitality manufacturing.” Parts of these 4 gigawatts can be despatched to California in an effort to shore up its electrical grid, which is extra susceptible than ever. (Mexico introduced the development of {an electrical} transmission line between Sonora and the Baja California Peninsula in July 2024.)
The San Diego Chamber of Commerce described the settlement as a “collaboration to advertise the vitality sector and improve enterprise and financial ties to facilitate a transition in direction of clear vitality.”
However memoranda aren’t treaties, and thus not binding. Extra to the purpose, they’re susceptible to contravening motion on the federal degree. Which brings us to:
Virtually two weeks after the signing of the memorandum, President Trump imposed 25 % tariffs on all imported cars and auto parts, which is taking impact at midnight on Thursday, April 3, 2025. This motion follows the implementation of separate 25 % tariffs on all metal and aluminum (together with auto elements) imported to the U.S., no matter nation of origin. Additional complicating issues: a 25 % tariff on all imports from Mexico.
So, in principle, an imported auto half with metal parts might probably rack up 75 % tariffs if coming into the U.S. from Mexico, from the place California imported $14.7 billion in transportation gear in 2023. (Sonora, for instance, is residence to a pair of Ford manufacturing services.)
However “in principle” is the operative phrase.
That is now (perhaps)
This degree of tariffs is unprecedented, leaving trade consultants scrambling to know the brand new business-as-usual.
Commerce consultants aren’t in any respect certain whether or not tariffs can or can be stacked. But when they’re, what was as soon as sound financial technique for Ford — importing vehicles from Mexican services — all of a sudden turns into a monetary downside.
Extra essential, companies of all sizes depend on regulatory consistency to make knowledgeable selections right this moment and to plan for tomorrow. And whereas Ford, in the end, has the assets to navigate these uncertainties, most corporations don’t. Such companies shouldn’t prioritize the MOU, based on Kathleen Claussen, a professor of worldwide financial and commerce regulation at Georgetown College Regulation College.
“An organization with restricted assets must be targeted on what’s taking place on the federal degree,” stated Claussen, “everybody must be targeted on the White Home.”
In different phrases, a as soon as promising MOU might transform DOA.