'Tariff Man' takes aim at automakers 'Tariff Man' takes aim at automakers 'Tariff Man' takes aim at automakers

'Tariff Man' takes aim at automakers

Macro 4 minutes to read
Michael McKenna

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.


US president Donald Trump has expanded his “tariff man” mandate beyond China to Mexico, where he plans to apply a 5% tariff on all goods as of June 10 if authorities do not take concrete steps to halt the number of Central American migrants entering the US via Mexico.
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.
 
Mexican imports
According to Deutsche Bank chief economist Torsten Slok, “US trade with Mexico is basically all about cars”. With Trump claiming that he is ready to escalate the 5% tariff to 25% if Washington is not satisfied with Mexico’s response, Deutsche’s latest report forecasted General Motors taking a $6.3 billion hit before interest and taxes. Fiat Chrysler would see a $4.8bn impact and Ford would take $3.3bn.

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.
USDMXN
USDMXN (daily, source: Saxo Bank)
General Motors (daily, source: Saxo Bank)
General Motors (daily, source: Saxo Bank)

Disclaimer

The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.