WASHINGTON, DC–Donald Trump doesn’t seem to understand how tariffs work, but that doesn’t keep him from making up new ones, and throwing profit forecasts of several industries and the markets into chaos.
Trump said Thursday he is going to to levy a 5% tariff on all goods coming into the U.S. from Mexico just months after cutting an updated trade deal, an amendment to the North American Free Trade Agreement. Trump said the tariff is punishment for Mexico not doing enough to stem the flow of illegal immigration across the southern border. Trump says the tariff will go up periodically if Mexico does not make the right moves.
North American production in Mexico in 2018: FCA 26%, Ford 10%, GM 26%, Honda 8%, Hyundai-Kia 34%, Mazda 100%, Nissan 48%, Toyota 8%, VW 82%.
The Mexican undersecretary for North America is calling new tariffs on Mexican goods announced by U.S. President Donald Trump a matter that is “most serious.”
Trump’s tariff war with Mexico, China and the EU is designed to thwart a global economy and global supply chain and incentivize companies to create factories in the U.S. that would not be subject to tariffs. But the short term nature of U.S. Presidential politics means that companies can hardly be expected to build plants around a policy that could be negated in January 2021.
Tariffs on Mexican goods will hurt automakers and suppliers: Ford, Volkswagen,Toyota, FCA, GM, Mazda, Honda, Nissan, ITT, Rassini, Bosch, Brembo, Chassis Brakes International, Akebono to name just some.
Ford and GM are already reporting that Trump steel tariffs are costing them in excess of $1 billion a year.
Jesus Seade, the trade negotiator for Mexican President Andrés Manuel López Obrader, said Thursday in a news conference that if the tariffs come to pass, “we should respond in a forceful way.” But he said right now that it is important to find out whether these tariffs are “really on the table.”
He says if Trump is serious, the move is bad for “two countries that are trying to arrive at a marvelous free trade treaty, the best in history, according to President Trump.”
The tariff is effective June 10. The president says the percentage will gradually increase “until the Illegal Immigration problem is remedied.”
Trump’s Mexico plans leave markets set for a turbulent end to what’s been a rough month for global equities, down the most since December. Investors’ focus up to now has been on the U.S. tariff escalation against China. Now, industries can layer the Mexico situation on top of that.
Shares in Japan’s major automakers sank on Friday. Shares in Toyota Motor Corp, Nissan Motor Co and Honda Motor Co all fell around 3 percent or more, while Mazda Motor Co fell nearly 7 percent. All four automakers operate vehicle assembly plants in Mexico.