Tuesday 17 September 2019

Trump's latest tariff move hits markets and threatens higher costs for manufacturers

Trade

The move marries two key Donald Trump issues, immigration and trade
The move marries two key Donald Trump issues, immigration and trade

Jenny Leonard and Shawn Donnan

US President Donald Trump's vow to impose tariffs on all Mexican goods over illegal immigration threatened to increase costs for car-makers and other manufacturers and left Mexico's president calling to resolve the issue with dialogue.

US equity futures slumped as Trump opened a new front in his trade wars, threatening to place escalating tariffs on Mexico and jeopardising a new North American trade agreement.

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Mexico is by far the largest source of US car imports and tariffs on goods from there would increase costs for many major manufacturers.

"These measures aren't beneficial for Mexicans or Americans," Mexican President Andres Manuel Lopez Obrador said.

He has not received a response from Trump to a letter he sent the American president calling for talks.

The latest move announced by the self-described Tariff Man would put 5pc American duties on all Mexican imports on June 10, rising in increments to 25pc in October unless Mexico halts "illegal migrants" heading to the US.

Trump warned the levy "would gradually increase until the illegal immigration problem is remedied, at which time the tariff will be removed."

The Mexican peso tumbled more than 3pc, while the dollar jumped along with the yen. Treasury yields slipped to a fresh 20-month trough.

The move, which has major implications for American car-makers and other companies with production south of the border and the US economy as a whole, represents Trump's latest expansion of his trade wars.

It comes just days after he removed steel tariffs on Mexico that had caused retaliation against US farm products. It also marries two of his signature issues - trade and immigration - as he ramps up his campaign for re-election in 2020.

The value of cars, trucks, buses and special purpose vehicles imported into the US from Mexico totalled about $68bn (€61bn) last year, according to the US Census Bureau. "Tariffs will mean higher price tags on cars for sales in US and that will hit sales," said Seiichi Miura, an analyst at Mitsubishi UFJ Morgan Stanley.

Initial reaction from Mexican officials was measured, with Obrador saying in a letter to Trump, posted on Twitter, that "I don't want confrontation."

Obrador said his foreign minister and other officials would visit Washington to seek agreement. Jesus Seade, Mexico's under-secretary of foreign relations for North America, said the country won't retaliate before discussing the matter with the US But the tariff threat, he added, "if turned into reality, would be extremely serious."

Economists warned the move could hurt both countries. Mexico's exports to the US account for about four-fifths of total overseas shipments, or about 28pc of its gross domestic product, according to Bloomberg chief economist Tom Orlik.

For the US economy, 5pc tariffs on $346bn of Mexican imports means a price tag of about $17bn, which rises to $87bn if the taxes increase to 25pc. American consumers will feel the impact more than they did with the China tariffs, as price increases for items like food are more directly observable, Orlik said.

Bloomberg

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