Economists warned that U.S. President Donald Trump’s vow to impose a 5% tariff on Mexican goods poses a new danger to the world economy.
They worry the move will further upend supply chains and trade diplomacy and diminishes the likelihood of a near-term breakthrough with China.
Here’s reaction from a mix of economists, trade experts and market analysts:
Mary Lovely, Syracuse University economics professor
'This is another attack on supply chains,' she told Bloomberg Television. 'This is really going to hurt American businesses who use Mexico to reduce their costs and stay competitive with European and Asia.'
'One thing which Donald Trump has said which we know is true now is that he is a tariffs man. He sees tariffs as the solution to all kinds of problems. It’s just throwing the entire card table over, this is just saying we don’t play by anybody’s rules, we can use tariffs when we want.'
David Mann, global chief economist at Standard Chartered
“This news does leave the world wondering whether Trump’s use of tariffs could become ever broader. This is a step change as previously we had been seeing delays in trade-related decisions on Europe and Japan as we thought the administration was so focused on China.'
'It does add to the reasons to worry that any country running a trade surplus with the U.S. could come into the spotlight in the future.”
Rob Carnell, Asia-Pacific head of research at ING Bank
'It’s clearly a further risk-off development, and keeps alive the bond rally, undermines thoughts of an upward equity correction and should keep the dollar grinding stronger. It also dampens hopes for any resolution to the U.S.-China conflict, showing just how easily the U.S. administration resorts to tariffs, not just threats of tariffs, when they don’t get what they want.'
Torsten Slok, economist at Deutsche Bank AG
'If this is implemented it will be a serious downside risk to the U.S. economy. Looking carefully at the trade data between the U.S. and Mexico shows that 67% of all imports from Mexico are related-party trade which is another way of saying intra-company trade. What this means is that U.S. companies are using Mexico for production. Put differently, most of the trade between Mexico and the U.S. is the global supply chain. And the trade data further shows that the biggest import categories from Mexico to the U.S. are cars and car parts and trucks and buses.'
Deborah Elms, executive director of the Asian Trade Centre
'The first thing to note is that there is no plausible legal mechanism for applying tariffs in this way. Trump can do it, but this action will be subject to global condemnation.'
'It is unlikely to matter to him, of course, but it will make the global trading system much more precarious. The largest player will have clearly ‘gone rogue.’'
'You may ask what is the difference with steel, aluminum, washing machines, China, etc. and Mexican immigrants? The former actions all had at least a thin veneer of legal justification. Most of these decisions are being fought over at the World Trade Organization now, but they had rules to argue about.'
'The Mexican immigration issue is simply not allowed. There is no provision that lets a member block trade over migrants.'
'The consequences are therefore much bigger than just what happens to companies operating between the U.S. and Mexico or within NAFTA. This is a global concern.'
Sean Callow, senior currency strategist at Westpac Banking Corp.
'Global investors worried about U.S.-driven protectionism have been focused firmly on China so a flare-up in trade tensions with Mexico was definitely not on the market radar. Just this week the Bank of Canada expressed ‘increasing prospects for the ratification’ of USMCA. This seemed reasonable given U.S. VP Pence has just arrived in Canada to call for quick passage of the agreement. Pence appears to be completely out of the loop, with every indication from the White House statement that this is very much a Trump decision, not a carefully crafted team policy.'
'This is obviously a major setback for CAD, MXN and the thousands of U.S. businesses that use products made in Mexico (much of which is by U.S.-owned firms). Markets may temper their negative response slightly, if only in hope that corporate America will lobby the White House hard enough to produce some form of backdown before the virtually unthinkable 25% tariffs threatened by October. But it will be a fresh cause for concern for central banks with looming policy decisions such as the RBA and ECB.'
Cliff Tan, East Asian Head of Global Markets Research, MUFG Bank
'Econometric studies have suggested the North America trade engine (USMCA) could benefit as the China trade engine slows down. This is throwing sand into USMCA.'
'When you only have a hammer, every problem looks like a nail'
Shane Oliver, chief economist at AMP Capital
'This may be about immigration but it will just add to trade war fears and cause a further blow to business confidence in the U.S. – as businesses will be wondering who will be hit next in their supply chain.'
'Shares are likely to see more short-term downside until the trade issues are resolved. In fact, this may be necessary to put pressure on President Trump to negotiate. So it remains a time for caution for the short-term focused.'
Stephen Innes, head of trading at SPI Asset Management
'It will be a warning to the world, especially Canada and Europe, that Tariff man means business. It sends a horrible signal to risk markets as we tack to the key G20 which is starting to look like a make or break scenario when it comes to U.S.-China negotiations.'
Chua Hak Bin, economist at Maybank Kim Eng Research Ltd.
“Trump is broadening the trade war to multiple fronts and tariffs have become his favorite weapon. There is the big trade war with China and there are smaller battles with the EU over Airbus subsidies, and Germany and Japan over autos, and now with Mexico over migrants.”
“American consumers will bear an increasing proportion of the cost from tariff hikes, as the coverage spreads to consumer goods. Both tariffs and export controls are disrupting and wreaking havoc to supply chains.”
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