Trump’s tariffs: a new threat for market

On Thursday, US President Donald Trump threatened to raise tariffs to Mexico if it did not stop the flow of migrants to the United States. That's the consequences.

The US Presidente Donald Trump repeats a well-known cantata since he took office: Tariffs will rise. However, this threat comes at a time when no one was waiting for it.

In recent months Trump had concentrated his efforts against China, and relations with Mexico had a better tone thanks to the USMCA, about to be approved.

Trump’s stance is difficult to understand. Imposing tariffs on the countries that sell you is like asking the owner of a supermarket to pay you for the right to buy things. Maybe he’ll do, but it will make you buy your products more expensive.

Trump’s stance also has an electoral tuff. All attempts to build a wall on the border between Mexico and the United States have been blocked by both the Congress and the Supreme Court of the United States. Trump resumes his electoral rhetoric and wants to show that his threats work.

Markets worried about tariffs against Mexico.

The increase in tariffs hits international trade harder because of the surprise of the measure. Although at the beginning of his presidential period, Trump found a victim in Mexico to retaliate his anger, the ratification of the USMCA promised to change this situation.

“The threat of tariffs on Mexico was completely off the market’s radar,” said Cliff Hodge, director of investments at Cornerstone Wealth Group. “No one has been talking about tariffs on Mexico.”

The threat, which would not enter into force until June 10, has already had its effects on the market. Dow Jones fell 1.4% on Friday, along with the S & P and Nasdaq.

The unforeseen tariffs shake the technological industry, who see Mexico as an alternative to China. The Verge commented that GoPro had planned to move its production to Mexico due to the economic war between China and the United States.

The primary industry affected was the automotive industry. The production of cars depends a lot on free trade between Mexico and the United States. The United States has imported $59B in parts from Mexico, while last year Mexico received 2.7 million finished cars and trucks with an approximate value of $52B, according to data from the US Department of Commerce.

This year, sales in the automotive sector have fallen, so they will probably prefer to cushion tariffs instead of increasing prices, with a reduction in the profit margin.

The consequences in Mexico are also felt. On Friday, the Mexican peso fell sharply against the dollar (3.5%). The president of Mexico sent a letter to his counterpart, where he asked to avoid confrontation.

“Tariffs are not an appropriate tool to address serious immigration challenges, The most effective way to address these concerns is for the administration and Congress to pass a permanent solution to fix the United States’ broken and outdated immigration system.”, commented Jason Oxman, CEO and president of the Information Technology Industry Council (ITI).

Analysts from the United States considered that Mexico could respond with an increase in tariffs. However, this seems not to be the case.

In the port of Veracruz, López Obrador announced that he would take measures to control the migratory flow, concerning human rights, to avoid an economic war with the United States.

This statement could prevent the conflict from escalating, but it is also a bad sign. It would make us think that threats are a useful diplomatic tool to solve problems that are incumbent in both countries.