As U.S. President Donald Trump’s trade war with China ramps up, he turned his attention back to Mexico on Thursday.
Trump threatened to impose a 5-percent tariff on all Mexican imports starting on June 10. Trump said tariffs could be hiked to 25 percent in coming months if Mexico does not take meaningful steps to curb illegal immigration across the southern U.S. border.
“The Tariff will gradually increase until the Illegal Immigration problem is remedied,......at which time the Tariffs will be removed,” Trump tweeted.
What’s At Stake
According to the Office of the U.S. Trade Representative, Mexico was the second-largest importer of goods to the U.S. in 2018 with a total of $346.5 billion imported last year. Mexican imports accounted for 13.6 percent of all U.S. imports in 2018. Top Mexican exports include automobiles, vehicle parts, computers and crude oil.
In a letter to Trump, Mexican President Andrés Manuel López Obrador said U.S. and Mexican officials can begin meeting as soon as Friday to discuss a resolution that can benefit both the U.S. and Mexico.
“Social problems cannot be resolved with taxes or coercive measures,” López Obrador wrote in a letter to Trump.
JPMorgan economist Michael Feroli said tariffs on Mexico could have a major negative impact on the U.S. economy.
“Even if a deal is quickly reached with Mexico, which seems plausible, the damage to business confidence could be lasting, with consequences that might still require a Fed response,” Feroli wrote.
He said a full 25 percent tariff on Mexican imports would likely require two Federal Reserve interest rate cuts by the end of the year to stabilize the U.S. economy.
How To Play It
News of the Mexican tariffs sent U.S. stocks dropping on Friday. The SPDR S&P 500 ETF Trust (NYSE: SPY) traded lower by 0.7 percent. Several U.S. stocks with exposure to Mexico experienced selling pressure as well:
- Ford Motor Company (NYSE: F) was down 2.6 percent.
- General Motors Company (NYSE: GM) was down 4.2 percent.
- Fiat Chrysler Automobiles NV (NYSE: FCAU) was down 4.7 percent.
- Calavo Growers, Inc. (NASDAQ: CVGW) was down 4.2 percent.
- Chipotle Mexican Grill, Inc. (NYSE: CMG) was down 1.8 percent.
In addition, the iShares MSCI Mexico Inv. Mt. Idx. (NYSE: EWW) was down 3.4 percent on Friday, with several of its top holdings experiencing heavy selling:
- Fomento Economico Mexicano SAB (NYSE: FMX) was down 3.5 percent.
- America Movil SAB de CV ADR Series L (NYSE: AMX) was down 3.2 percent.
- Banco Santander Mexico Sa Instcn De (NYSE: BSMX) was down 3.1 percent.
- Grupo Aeroportuario dl Srst SAB CV (NYSE: ASR) was down 4.5 percent.
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