Trump Rattles Markets Anew As Details Of Mexico Tariffs Show Rate Rising To 25% Within Months

Donald Trump isn’t very good at keeping secrets, so it came as no surprise that the president quickly confirmed a story in the Washington Post, which tipped the administration’s intention to threaten Mexico with tariffs in order to compel America’s southern neighbor to curtail illegal immigration.

It’s also not terribly surprising that Trump is using tariffs as a weapon in order to advance other parts of his agenda. Tariffs are now just part of the foreign policy tool box.

What is a bit surprising is that Trump already had the details and the timetable figured out, although WaPo, in their original reporting, noted that aides were working late Thursday afternoon on the logistics around implementation.

Read the full story: ‘Tariff Man’ Announces Duties On All Goods From Mexico Starting June 10th

From June 10, all goods from Mexico will be taxed at 5%, and that will continue until illegal immigration “stops”. Trump also said the tariff rate will gradually increase, which naturally raises questions about what constitutes “success” in terms of Mexico proving they’ve done what they can to curtail illegal border crossings.

Here are the operational specifics, as communicated by the White House on Thursday evening:

To address the emergency at the Southern Border, I am invoking the authorities granted to me by the International Emergency Economic Powers Act.  Accordingly, starting on June 10, 2019, the United States will impose a 5 percent Tariff on all goods imported from Mexico.  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.  Workers who come to our country through the legal admissions process, including those working on farms, ranches, and in other businesses, will be allowed easy passage.

To say that’s the wrong message to be sending right now amid the push to get the USMCA ratified would be to grossly understate the case.

In fact, this seems like an extremely ill-advised decision, and it’s made immeasurably worse by Trump explicitly stating that when it comes to what counts as “success” on reducing illegal immigration, it will be the administration’s “sole discretion and judgment”.

Reading further, it sounds like Trump may consider nothing short of the wholesale “elimination” of illegal border crossings as sufficient to lift the tariffs. That isn’t achievable. Mexico simply doesn’t have the capacity to completely stop illegal immigration into America. It’s literally mission impossible.

Markets are not particularly enamored with the abrupt announcement. US equity futures dove, USDJPY dipped and the peso of course took a hit, falling as much as 2%.

This has the potential to exacerbate the Treasury rally and in case you haven’t noticed, stocks have had just about enough of falling bond yields under the current circumstances (i.e., amid the growth jitters inspired by trade escalations).

It’s worth noting that in addition to tariffs being used to push the administration’s broader agenda, priorities like “national security” are now wielded to gain leverage in trade negotiations. In other words, this goes both ways. The administration treats Trump’s agenda as a unified vision, rather than a set of discrete policy priorities to be advanced separately, using means appropriate to a given end. That is a Pandora’s box.

Obviously, Thursday evening’s news will only heighten concerns that the world is headed for an all-out trade war, and the fact that Trump is willing to slap tariffs on Mexico on the very same day that he began to pressure lawmakers to move rapidly forward with ratifying the USMCA, seems almost schizophrenic.

Trump’s official statement finds the president resorting to the same, old story. “If Mexico fails to act, Tariffs will remain at the high level, and companies located in Mexico may start moving back to the United States to make their products and goods”, he said, adding that “should Mexico choose not to cooperate on reducing unlawful migration, the sustained imposition of Tariffs will produce a massive return of jobs back to American cities and towns.”

Promises, promises.

Trump also implored Americans not to lose track of the narrative he’s selling. “Remember, our great country has been the ‘piggy bank’ from which everybody wants only to TAKE”, the president seethed, on the official White House webpage.

Eventually, Americans will get tired of this charade. Eventually.