Making cars in high cost Brazil in response to import taxes

The Economist (Sept 24, 2011) describes a 30 percent increase in tax on cars with an exemption for cars made in Brazil, Mexico or the Mercosur trade block. Thus, even though labor costs in Brazil are 60 % higher than that in China, the high import tariffs will encourage domestic production.  Associated domestic changes such as reduced payroll taxes for domestic manufacturing are supposed to ease the impact of labor costs. But the short notice (1 day) before the taxes were imposed provides little time for product rampup. Other than increased costs in the auto supply chain, and thus higher consumer prices, what manufacturer response do you anticipate? Will a Mercosur focus result in a dispersed auto supply chain across all the member countries or local supply chains that make all components ?  How does the absence of a common currency across Mercosur countries complicate supply chain decisions ?

About aviyer2010

Professor
This entry was posted in Global Contexts, Operations Management, Supply Chain Issues and tagged , , , , , . Bookmark the permalink.

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