'Tariff Man' takes aim at automakers
Head of Editorial Content, Saxo Bank
Summary: President Trump is trying to halt the arrival of Central American migrants with a series of rising tariffs on Mexican imports. If the issue is not resolved before the June 10 deadline, it could weigh very heavily on US carmakers.
In March of this year, over 100,000 asylum seekers reached the US’ southern border, with Foreign Affairs (a Council on Foreign Relations publication) claiming that most came from “El Salvador, Guatemala, or Honduras […] to escape gang violence, poverty, and lack of opportunity”.
According to CNN, the new tariffs could place major US corporate names in big trouble, as more than two-thirds of trade from Mexico consists of exchanges between US firms and their subsidiaries.
Today, Reuters reported that Mexico City is taking the threat seriously and has sent a high-level delegation to Washington to discuss the matter.
Speaking to press Sunday, Acting US Chief of Staff Mick Mulvaney emphasised that “we intentionally left the declaration sort of ad hoc,” adding that “there’s no specific target, there’s no specific percent, but things have to get better. They have to get dramatically better”.
A crisis for carmakers
Although a vast array of goods from computers and personal electronics to agricultural produce and alcohol cross the US-Mexican border every day, the single largest sector placed in jeopardy by Trump’s tariff threats is automakers.
Among Japanese carmakers, Nissan would be the hardest hit as exports from Mexico to the US account for about 25% of the company's US sales.
Mexican-made vehicles account for about 15% of US light vehicle sales, states industry research group LMC Automotive.
Key charts to watch
USDMXN spiked from just above 19.00 to 19.82 on the initial announcement, while GM shares dropped from the 34.75 area to 33.20. Long-term support dating back to 2012 sits at around 31.85 for GM shares; this could be a key level to watch as negotiations continue.
Latest Market Insights
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.