On Friday, President Trump announced his plan to impose tariffs on all the goods imported from Mexico into the U.S. According to Trump; the new tariffs will go into effect on June 10 and continue until the “illegal immigration problem is remedied.” This announcement sent economists and analysts into a frenzy as they calculated the impact this could have on global equities.
5% Tariffs
The Trump administration released a statement from the President on Friday regarding the border crisis. New tariffs have been decided for all goods imported into the U.S. from Mexico. Currently, the new tariffs will be implemented on June 10 and will stay until “illegal immigration problem is remedied,” according to Trump.
On June 10th, the United States will impose a 5% Tariff on all goods coming into our Country from Mexico, until such time as illegal migrants coming through Mexico, and into our Country, STOP. The Tariff will gradually increase until the Illegal Immigration problem is remedied,..
— Donald J. Trump (@realDonaldTrump) May 30, 2019
Trump’s announcement comes in the middle of the U.S. and China trade war, which has been going on for over a year now. The imposed tariffs on Mexico are set much lower than the tariffs on China, however, at 5% [1], and economists are worried that these new tariffs will cause the equity markets to fall even further.
“Despite a less severe impact on GDP, the impact on supply chains and economic activity could be significant, implying that financial markets could be affected materially,” Nomura research analysts led by Lewis Alexander said.
Automobiles and capital goods are the two groups that economists expect to take the hardest hit as they both make up most of the U.S.’ imports from Mexico. General Motors and Ford’s stocks both fell on Friday after the announcement.
Different Tactics
But announcing new tariffs is no longer something that is solely for business. Instead, tariffs have become somewhat of a negotiation tactic.
Some analysts think that this is just a tactic to get Mexico and Congress working with him, however, as Trump has previously threatened to put tariffs on any goods imported from Mexico before. [2] “Could the threat of monthly escalating tariffs on Mexico be a negotiating ploy? Certainly,” Sam Rines, the chief economist at Avalon Advisors, told clients on Friday. “That might even be the most probable outcome of the threat. But — even if it is just a negotiating ploy — it is not something that can be ignored. The threat creates incremental uncertainty, further crippling already flagging business investment.” [3]
Notes:
- ^“Statement from the President Regarding Emergency Measures to Address the Border Crisis.” White House, 1 June 2019, www.whitehouse.gov/briefings-statements/statement-president-regarding-emergency-measures-address-border-crisis. (go back ↩)
- ^“Trump threatens tariffs if Mexico does not help with immigration, drugs.” 1 June 2019, news.yahoo.com/trump-threatens-tariffs-mexico-does-174051876.html. (go back ↩)
- ^Ungarino, Rebecca. “‘Mayhem,’ ‘Crippling,’ ‘Serenity now’: Trump’s threatened tariffs on Mexico would spur chaos, Wall Street warns.” markets.businessinsider.com, 1 June 2019, markets.businessinsider.com/news/stocks/trump-mexico-tariff-announcement-what-it-means-for-stocks-2019-5-1028246373. (go back ↩)
