Trump Promises Tariffs on All Mexican Goods Starting June 10th

Just when it seemed the trade climate in the North American region was easing, President Donald Trump launched a new salvo late Thursday, promising a 5 percent levy on all Mexican goods crossing the U.S. border if the country doesn’t stem the flow of illegal migrants.

The tariff would land on all Mexican goods on June 10th, ramping up to 10 percent on July 1 before topping out at 25 percent by October. For automakers and those who sell (and buy) the final product, the prospect of a new import levy is the stuff of nightmares.

Earlier this month, the White House removed steel and aluminum tariffs imposed on the U.S.’s northern and southern neighbors while moving forward with the USMCA trade deal. The U.S. hopes to ratify the deal this summer, with CNBC reporting that U.S. Trade Representative Robert Lighthizer has submitted a draft Statement of Administrative Action, paving the way for the deal’s Congressional consideration.

While yesterday’s tariff threat mirrors past threats from the Trump administration, this one comes with a deadline. It also came on the same day Mexican President Andres Manuel Lopez Obrador sent the renegotiated trade deal for Senate approval.

Mexican goods accounted for 13.6 percent of all goods entering the U.S. last year. The tally totalled $346.5 billion, with produce and vehicles/auto components ranking high on the list.

In a statement citing the International Emergency Economic Powers Act, the White House said:

If the illegal migration crisis is alleviated through effective actions taken by Mexico, to be determined in our sole discretion and judgment, the Tariffs will be removed. If the crisis persists, however, the Tariffs will be raised to 10 percent on July 1, 2019. Similarly, if Mexico still has not taken action to dramatically reduce or eliminate the number of illegal aliens crossing its territory into the United States, Tariffs will be increased to 15 percent on August 1, 2019, to 20 percent on September 1, 2019, and to 25 percent on October 1, 2019. Tariffs will permanently remain at the 25 percent level unless and until Mexico substantially stops the illegal inflow of aliens coming through its territory.

Domestic automakers like General Motors stand to be hit hard in such a scenario. As Automotive News reports, GM exported over 811,000 cars and light trucks from its Mexican factories last year.

“Margins are so thin in the U.S. market right now that there’s no way that any automaker is not going to pass on these tariffs to their customers,” Macquarie Securities analyst Janet Lewis told the publication.

“The unknown factor is the impact on suppliers, as components can move back and forth between Mexico, the United States and Canada up to 20 times before they make their way into assembled cars.”

As one would expect, the shares of automakers with a significant Mexican footprint fell in Friday pre-trading.

[Image: General Motors]