Trump’s Tax Strike on Mexico
The White House released a statement on the 30 of May addressing the illegal immigration crisis at the Southern Border of the United States. President Donald Trump mentioned that he will take “action to dramatically reduce or eliminate the number of illegal aliens crossing its territory into the United States”. The tariffs will increase up to 25% on 1 October, where it will remain until “Mexico substantially stops the illegal inflow of aliens coming through its territory.”
Since President Trump’s inaugural, he has threatened Mexico by building a wall along the border to prevent immigration into the US. The controversy was heavily criticised by leaders around the globe. However, Mr Trump claimed that “Mexico’s passive cooperation” had threatened “national security and economy” domestically and that he “cannot allow this grave disaster to continue”. He said the illegal immigration from Mexico was “overwhelming our schools, overcrowding our hospitals, draining our welfare system, and causing untold amounts of crime”.
The scheduled tariffs will affect U.S. companies operating in Mexico and U.S. consumers. President Trump believes affected companies that relocate back to the U.S. as a result of the tariffs will deliver a “massive return of jobs back to American cities and towns”. However, some of the retail giants such as Costco and Walmart will be forced to raise its prices’ on its Mexican products. The concern is that the costs from the tariffs will be transferred to the Americans.
Ongoing Trade Wars
President Trump has had an extensive track record by opening up trade wars against various nations. The trade deal with Mexico is just the latest tariff battle in the world economy. Based on last year’s data, US$346 billion of goods produced in Mexico were shipped to America. The imposed tariff would transfer US$85 billion in costs to American consumers.
Mr Trump’s decision came after the U.S. added 25% tariffs on US$200 billion worth of Chinese goods last month, to which China retaliated by raising tariffs on American goods – ranging around 20% to 25%.
Furthermore, steel and aluminium imports from China and other key trading partners suffered from levy penalties of 25% and 10% respectively since last year.
It is feared that the Trump administration will also enforce 25% tariffs on imported cars and parts affecting brands such as General Motors, Volkswagen, Toyota Motors and other automakers. In addition, President Trump had terminated India as a beneficiary developing country, effectively removing all the tax benefits.
These trade moves had proven that a trade deal with the U.S. is more than difficult, with the Trump administration using unconventional tactics to achieve its specific agendas.
Stock markets around the globe
In light of the latest trade move, the global stock market was shaken by sell-offs as many investors around the globe feared a potential global recession. Last week, U.S. stocks had experienced a constant decline throughout the week. The S&P500 declined over 6.5% at the end of May at 2752, marking its worst May return in seven years. It dropped 1.3% on the last day of May. Similarly, the Dow tumbled over 3.5% last week and fell sharply on the last day, losing 355 points to finish at 24815.
It appeared that the negative momentum rolled into the Asian stocks. Hang Seng plummeted by 1.3% over the last week to end at 26901. Nikkei 225 suffered a similar loss, dropping 2.4% to 20397 in the last week of May. Japanese vehicle makers such as Toyota and Honda that have factories in Mexico dropped 2.8% and 4.3% respectively in the last day of the week. Australian stocks were less affected by the trade news. ASX300 dropped 0.9% over the last week to finish at 6351.
In Europe, the STOXX Europe 600 index slipped 1.8% for the week, bringing its decline for the month to 5.5%, the worst monthly performance of this year. The DAX index and FTSE100 index fell 2.4% and 2.5% for the week to 11726 and 7161 respectively.
This political move has sparked widespread criticism from governments around the globe. U.S. Chamber of Commerce Vice President Neil Bradley stated that “imposing tariffs on goods from Mexico is exactly the wrong move.” Senate Finance Committee Chairman Chuck Grassley “supported nearly every one of President Trump’s immigration policies, but this is not one of them.”
Global uncertainty persists
However, there are others that have supported Mr Trump’s move on Mexico. Republican Senator Lindsey Graham supported “President Trump’s decision to impose tariffs on Mexico until they up their game to help us with our border disaster.”
These political moves by President Trump have yet again sparked volatility in international markets, and created uncertainty for many multinationals that use Mexico’s cheaper labour and distance from the United States to maximise production and profitability.
By Jack Lee
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