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.