President Donald J. Trump is expanding his trade war. He has threatened to escalate tariffs on imports from Mexico by June 10th, in retaliation for the country’s unrestrained flow of migrants illegally crossing into our borders. In his speech last Thursday, the President vowed to impose tariffs, beginning at 5 percent and increasing monthly, possibly up to 25 percent by October. As reported by the NY Post, the tariffs will continue and escalate until the Trump administration is satisfied that Mexico is doing what it can to prevent the stream of migrants entering the US from the southern border.
Wall Street, and avocado lovers, reacted with fear. The Dow Jones industrial average nosedived 354.84 points, or 1.4 percent, to close at 24,815.04 on Thursday. The blue chips index now has sixth consecutive week of closing in the red. The S&P 500 and Nasdaq both closed lower on Thursday, down 1.3 percent and 1.5 percent, respectively.
The financial market is still reeling from the impact of trade tariffs imposed on China, last month. The threat of these new tariffs will increase the burden of companies who are already struggling to adjust their supply chains, now that cheap goods from China seem to be a thing of the past.
In the imminent trade war with Mexico, one of the industries most impacted will undoubtedly be the Detroit automakers. Of the cars they sold in the previous year, 2.5 million of them were assembled in Mexico, as per data from Cox Automotive. The stock price for shares of General Motors and Ford fell 4.3 percent and 2.2 percent, respectively. Shares of Fiat Chrysler Automobiles dropped 5.8 percent. Since the North American Free Trade Agreement was passed in 1994, Automakers, in search of low-priced labor, moved their productions to Mexico. “Many thought Mexico would be an alternative, but now that looks in jeopardy,” said Cliff Hodge, director of investments for Cornerstone Wealth in North Carolina. “This was completely off the market’s radar and we’re seeing the resulting swift and sharp reaction,” he added.
The President maintains that the tariffs will bring back jobs to the US. “In order not to pay Tariffs, if they start rising, companies will leave Mexico, which has taken 30% of our Auto Industry, and come back home to the USA,” Trump tweeted on Friday.
Mexico too is reeling from the new policy. Roughly 80 percent of all of Mexico’s exports are to the United States, mostly manufactured merchandise including cars and televisions. Jesus Seade, Mexico’s deputy foreign minister for North America, was taken by surprise. He said the easiest response to would be an “eye for an eye”, but he then cautioned that reciprocal actions would lead to a trade war “and that is the last thing that we want.” Seade dejectedly recalled the work he has done for the past 20 months, drafting a replacement for the North American Free Trade Agreement (NAFTA) with the US. “This is difficult … even more so between two nations trying to seal a wonderful trade deal. The best trade deal in history according to Trump himself and suddenly he throws this in the way,” Seade said.
