Mexico Tariffs: Have They Been Avoided?

Mexico Tariffs: Have They Been Avoided?

Mexico Tariffs

Have They Been Avoided?

In order to force the Mexican government to solve the problem of illegal immigration, US President Trump said on May 30th that the United States will impose a 5% tariff on all Mexican exports to the United States from June 10. If the problem is not resolved, the imposed tax rate will increase month by month until 25%.

The threat of imposing tariffs on nearly $350 billion in imported goods from Mexico, prompting Mexico to overcome US doubt with regards to border issues. Mexican Foreign Minister Marcelo Ebrard arrived in Washington a few days ago and met with the US Vice President and the Secretary of State at the White House on the 5th. He hoped to reach an agreement with the US  to avoid adding tariffs before the deadline.

Eventually, on June 7th, President Trump claimed on social media (Twitter) that the United States has reached an agreement with Mexico on border issues. A joint statement issued by these two countries on Friday night claimed that Mexico has agreed to step up enforcement to curb irregular migration, including the deployment of a newly formed National Guard across the country, with a concentration on the southern border of Guatemala. On Thursday night, the Mexican Foreign Ministry said it would deploy as many as 6,000 National Guards troops.

The statement said: “Those who seek refuge across the southern border of the United States will quickly return to Mexico, where they may await a trial with regards to their asylum application.” It then added that Mexico will approve all of these people for humanitarian reasons. These two countries have further agreed to complete additional clauses within 90 days. At the end of the talks in Washington, Mr Ebrard told reporters that his country would respond to lift the population smuggling network and aligned itself with the United States to share information about immigrants.

Mr Ebrard has promised that Mexico will accept more immigrants returning to wait for their US asylum cases and provide work permits, education and medical services when they stay in the country. In return, the United States will accelerate its investment and development plans into Central America and southern Mexico, with a financial aid program amounting to US$5.8 billion announced at the end of last year. “If we have success with the measures we’re taking, there’s no reason to think that the numbers [of migrants arriving at the border] will continue as they have been,” Mr Ebrard said. President Trump has not directly cancel the tax increase plan but suspended the plan indefinitely.

The impact of this tariff negotiation

Once the tariff plans have been announced, the repercussions have not only hurt both parties but also affected the world economy as a whole and has led to significant fluctuation in the global financial markets. Companies such as: Mazda; Nissan and Honda that have a business connection between these countries, have been negatively affected. Moreover, it has also influenced the Nikkei 225 index. It is highly possible that the US-Mexico tariff would impact the trading relationship between the US and Japan.

Therefore, the suspension of the tariff would indeed relieve the pressure of the countries and companies that affected by it. Two major stock indexes in the Tokyo stock market opened significantly higher on the 10th, and the average price index of the Nikkei 225 stock rose by 1.20%.

Is Mexico tariff threat removed?

Even though the US-Mexico tariff agreement had somewhat been reached on June 7, on the 9th, Trump reiterating the importance of reaching an agreement with Mexico. At the same time, he warned that if the cooperation between the two sides fails because of some “unknown reasons,” the United States can return to the previous tariff position.

Moreover, on last Saturday, President Trump said on Twitter that “Mexico has agreed to immediately begin buying large quantities of agricultural product” from the U.S. The US Department of Agriculture and the US Trade Representative have not instantly responded to the requests for information on any trade terms. Mexico’s ambassador to the United States, Martha Coqui, said that this was not the case, saying that after the implementation of the “US-Mexico-Canada Agreement”, the purchase volume should rise.

Considering the above situation, it is highly likely that Mexico would eventually sign unequal clauses if they want to remove the tariff from the US. It is widely believed that before the 2020 election, Trump’s attention to the southern border is unlikely to decrease.

By Louis Cai

Click here for a one month free trial to our Lotus Blue Portal.

KOSEC does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information provided. KOSEC is intended to provide general information only. Please be aware that investing involves the risk of capital loss. This message is confidential and may be privileged. It is intended only for the use of the addressee named above. If you are not the intended recipient, any unauthorised dissemination, distribution or copying is illegal. We do not guarantee the security or completeness of information hereby transmitted and are not liable in either respect or in respect of any delay. Nothing in this message is intended as an offer or solicitation for the purchase or sale of any financial instrument. Any market prices or data, unless specifically verified and identified as such, are not warranted as to completeness or accuracy. Kodari Securities Pty Ltd (KOSEC) is a Corporate Authorised Representative (No. 399 556) of Longhou Capital Markets (AFSL No. 292464) which is regulated by the Australian Securities and Investment Commission (ASIC). KOSEC wishes to disclose that KOSEC and its staff may hold stock they recommend in their own portfolios and that any decision to purchase recommended stock should be done so after the purchaser has made their own inquires as to the suitability to their own requirements. Click here to view our FSG.
5 (100%) 1 vote

div#stuning-header .dfd-stuning-header-bg-container {background-image: url(https://www.kosec.com.au/wp-content/uploads/2019/01/Dashboard-Blue.png);background-size: cover;background-position: center bottom;background-attachment: initial;background-repeat: no-repeat;}#stuning-header div.page-title-inner {min-height: 335px;}
X