Trade Finance

Trump Threatens Tariffs Against All Mexican Goods

The president promised an escalating trade war until Mexico takes action to "dramatically reduce or eliminate" illegal immigration.

President Donald Trump said his administration would impose a tariff on all goods coming from Mexico, citing that country’s inaction on what the president called a “sustained influx of illegal aliens” into the United States.

“As everyone knows, the United States of America has been invaded by hundreds of thousands of people coming through Mexico and entering our country illegally,” President Trump said in a statement.

The president said tariffs would begin at 5% on June 10 and would increase by 10% increments monthly through October when they would hit 25%. “Tariffs will permanently remain at the 25 percent level unless and until Mexico substantially stops the illegal inflow of aliens coming through its territory,” Trump said.

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In a letter in response, Mexican President Andrés Manuel López Obrador said the Trump administration’s American First policy was “a fallacy.”

“President Trump, social problems are not resolved with taxes or coercive measures,” López Obrador wrote.

The Mexican president said a delegation led by Foreign Minister Marcelo Ebrard was traveling to Washington. He did not threaten retaliatory tariffs.

Trump’s announcement comes as China’s retaliatory tariffs on $60 billion of U.S. goods goes into effect.

Analysts say the tariffs on goods out of Mexico would have a direct, disruptive impact on automakers’ supply chains.

“U.S. trade with Mexico is all about cars. This would cripple the auto industry,” Torsten Slok, chief economist and managing director at Deutsche Bank Securities, told Reuters. “It would bring car production to a halt pretty quickly.”

The price of spot gold increased 1.1% early Friday following the announcement. The Dow Jones Industrial Average was down 329 points before rallying moderately. The index later closed below 25,000 for the first time in four months.

Deutsche Bank Chief Strategist Binky Chadha said Trump trade wars have cost $5 trillion in foregone equity returns.

“The trade war has been key in preventing a recovery in global growth and keeping U.S. equities range bound,” Chadha said.