U.S. President Donald Trump has once again threatened new tariffs, this time against Mexico, where he tweeted an intention to implement a 5 percent tariff on goods imported from Mexico if illegal immigration from the country to the United States doesn’t stop. The tariff can potentially go into effect as early as June 5th. Trump vowed to raise the tariffs 5 percent monthly until October (i.e., until the tariff rate is 25 percent) or until the immigration is curtailed.
According to Reuters, Trump’s tweet and the statement which followed took Mexican President Andres Manuel Lopez Obrador and his government by surprise. Due to their close geographic proximity, the U.S. and Mexico are strategic trade partners, and threatening the relationship could put a strain not only on the economies of those two countries. According to the Office of the United States Trade Representative, the U.S. exported $256 billion of goods to Mexico in 2018. Mexico has long been one of the U.S.’s biggest trade partners, if only due to the country’s proximity.
The threats also call into question whether the USMCA trade deal between the U.S., Mexico, and Canada, which lawmakers have been working on aggressively in recent months to replace NAFTA, will come to fruition. Nevertheless, Mick Mulvaney, acting White House chief of staff, commented to CNBC that he didn’t expect the new tariffs to impact the confirmation of USMCA, as Trump’s threats are directly related to immigration issues, not to trade issues.
An average of 4,500 Mexicans are attempting to enter the U.S. daily, many of whom are claiming asylum. The huge influx of immigrants is straining the system and creating dangerous and uncomfortable situations for both the migrants and border patrol workers. Nearly 99,000 people have been arrested at the border in recent months.
The Mexican peso was down as much as 1.8 percent on Thursday after Trump’s announcement. As of 1:10 p.m. HK/SIN on Friday, the dollar had gained another 2.34 percent against the peso, trading at 19.5806. The dollar eased against most of its primary trading partners, sending the dollar index down 0.05 percent to 98.10 .DXY.