U.S. President Donald Trump just escalated tensions between the United States and its southern neighbor by vowing to impose a 5% tariff on all goods produced in Mexico. This is the latest in his string of attempts to Make America Great again by punishing Mexico for not stopping immigrants from entering the U.S. illegally.
Tariffs are one of the president’s preferred methods of bullying and punishing foreign countries in an attempt to get what he wants. This specific threat only expands his ongoing trade wars.
If he gets his way, the tariffs would begin on June 10th, the president tweeted Thursday, adding that it “would gradually increase until the illegal immigration problem is remedied at which time the tariff will be removed.”
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
The tariffs could rise to 25%—an unprecedented level—come October.
The move, which would not only punish Mexican manufacturers but also average Americans—who may end up footing the bill—and American companies with operations in Mexico, comes mere days after Trump removed steel tariffs on the country.
It may also risk Trump’s replacement for the North American Free Trade Agreement (NAFTA)—the US-Mexico-Canada Agreement (USMCA).
In an unsettling display of the power of a Trump tweet, Mexico’s peso weakened 2.4% and the 10-year U.S. Treasury yield dropped to 2.18% after his posts. According to Investor’s Business Daily, “Dow Jones futures sold off late Thursday, along with S&P 500 futures and Nasdaq futures” and automakers GM and Ford fell after the news.
Mark Cudmore, Macro Strategist with Bloomberg reports:
“This Mexico tariff news is far worse than even the initial market reaction makes it out to be. The timing is almost immediate. Chaos for both companies and bureaucrats. No time for anyone to prepare or make contingencies. The only way the S&P 500 doesn’t sink massively today is if Trump rows back on this. The U.S. imported almost $350b worth of goods from Mexico in 2018.
What makes it even worse again, if possible, is that so many traders were hoping Trump would soon take a more conciliatory trade zone because U.S. stocks have weakened.
This is a black swan event for markets and people aren’t even registering. Maybe traders are all hoping there’s some mistake or that this won’t be implemented.”
Mexican President Andres Manuel Lopez Obrador said that his foreign minister and others would be visiting Washington on Friday to come to an agreement. “I don’t want confrontation,” Lopez Obrador said in a letter to Trump shared on Twitter.
Al presidente Donald Trump en son de paz. https://t.co/5XdiY7hfeL
— Andrés Manuel (@lopezobrador_) May 31, 2019
According to Bloomberg, Mexico’s undersecretary of foreign relations for North America, Jesus Seade told “reporters in Mexico City Thursday at a previously scheduled event that the country won’t retaliate before discussing the matter with the U.S.” He also said “it would be disastrous” for the tariffs to go into effect.
While Trump says he is invoking the International Emergency Economic Powers Act to impose the tariffs, lawyers and analysts are questioning the legality of using it in this way. Federal law allows the use of tariffs to deal with “unusual and extraordinary threat.” Much like his attempt to declare a national emergency to fund the border wall, he may just be grasping at straws.
According to the Chicago Tribune, on May 24 a federal judge blocked Trump from building sections of the border wall with money acquired after his declaration of a national emergency.
Senator Chuck Grassley (R-Iowa) said Thursday:
“This is a misuse of presidential tariff authority and counter to congressional intent. I support nearly every one of President Trump’s immigration policies, but this is not one of them.”
Acting White House chief of staff Mick Mulvaney said that if Mexico is able to cooperate with Washington in the coming weeks, the tariffs will either be lifted or not even go into effect in the first place.
Un-ironically, Trump used undocumented immigrants and The Wall as a centerpiece of his 2016 presidential campaign and, now that he is gearing up for his 2020 re-election campaign, it should come as no surprise that he’s once again tackling the same issue.
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