Donald Trump spent Friday morning binge-tweeting about Mexico.
That’s something he’s done on too many occasions to count over the course of his presidency, but this time around, critics of the administration are even less receptive than usual. Indeed, to the extent the GOP is wary of Trump’s cavalier use of emergency powers and tariffs, the broadside against Mexico might well be the last straw, although it’s not clear what can be done.
Mexican Foreign Affairs Minister Marcelo Ebrard said Friday he’s set to meet with US officials in an effort to discern what’s going on. “Mexico is the main trading partner [of] the United States. What they receive from our country are essential goods and services”, he said in a tweet. “The migratory flow [from] Central America and other countries and the high consumption of narcotics is not the responsibility of Mexico”, he added.
Don’t tell that to Trump. “90% of the Drugs coming into the United States come through Mexico”, he said Friday. “This has gone on for many years & nothing has been done about it.”
Although politicians may be constrained in their capacity to hold Trump accountable, markets are not – at least to the extent risk assets are “allowed” to sell off by monetary policy makers.
Trump’s new tariffs on Mexico marked a fitting end to a bad month for equities. The pain for trade-sensitive sectors was acute and seems destined to get worse.
On Friday, the American Automotive Policy Council (a body that includes Ford and GM) warned that Trump’s proposed tariffs on Mexico “would impose significant costs on the US auto industry.” Friday was on track to be the worst day for the S&P 500 Auto Parts & Equipment subindex since the election.
For their part, Deutsche Bank warned that out of the total $86 billion tax implied in the worst-case scenario of 25% tariffs on imports from Mexico, some $23 billion of that “would fall on US autos”. That could “could cripple the industry and cause major uncertainty”, the bank says.
“If APTV, DLPH, LEA and VC… were to absorb the entire impact from a potential 25% tariff themselves, it could hurt their Ebit by up to 35-50%”, the bank continues, on the way to noting that “with the entire supply chain of certain components coming from Mexico, suppliers could eventually pass on much of the higher costs to automakers.”
What, exactly, would that mean, you ask? Well, nothing good. Specifically, Deutsche says that “if automakers were to carry the full unmitigated impact of 25% tariffs on imports from Mexico… the Ebit hit could be $3.3bn for Ford, $6.3bn for GM, and $4.8bn for FCA, vs only $0-1.7bn for Asian auto-makers.”
(Deutsche Bank)
Of course, automakers aren’t just going to swallow this. Rather, they’re going to pass it along to car buyers. That’s how this works. Contrary to Trump’s tireless efforts to convince everyone otherwise, tariffs are ultimately a tax on consumers.
If you ask Deutsche Bank, the average cost of vehicles sold in the US would rise $1,300 in a worst-case scenario, although in “vastly different proportions for each automaker”. Here’s the breakdown:
(Deutsche Bank)
Coming as this does at a delicate juncture, late in the cycle, the effect could be magnified.
“Irrespective of the volume of trade flows in the near term, we believe that investment decisions will be delayed further given the uncertainties and loss of confidence”, SocGen wrote Friday, in a short note documenting the likely impact of the new tariffs. “The more time the negotiation/ settlement takes, the greater the loss to investment and growth”, the bank went on to say, before cautioning that “in the worst-case scenario of prolonged uncertainty and continued tariffs, there would be serious business/investment implications for both Mexico and the US manufacturers.”
Meanwhile, Business Roundtable (which includes the CEOs of Walmart, Target and Home Depot), warned the administration that “moving ahead with these tariffs would jeopardize the prospects for the Administration’s top trade priority — the United States-Mexico- Canada Agreement.”
In the end, Trump’s tariffs on Mexico would “undermine duty-free North American trade that supports over 12 million American jobs”, the Roundtable despaired.
This, apparently, is what it means to “make America great again”.
Have no fear the very large brain of our Commander in Chief has factored all this in ….Trouble is he used his gut to do it by mistake…..
Note where the vast majority of the “ex-pat” auto assembly plants are located – in solidly Republican southern states. Certainly GOP politicians in those states will step up to defend those jobs!!
That was a joke.
Hatred of immigrants and foreigners is now the central pillar of US domestic and foreign policy. They will not dare.
Ordered a 2019 Ranger in April to try and time delivery for July where incentives should finally be worthwhile on this model in consideration of Fords production strategy. That strategy was looking fairly promising. Lack of incentives is not a deal breaker, but an increase in MSRP due to Trump will be.