Mexico calls for ‘prudent’ response to Trump tariff threat

Mexico’s president called for prudence, dialogue and diplomacy after US President Donald Trump threatened to set tariffs on all imports from America’s southern neighbour unless it stepped up efforts to stop illegal migration. Andrés Manuel López Obrador on Friday morning took a measured tone in response to Mr Trump’s threat, which plunged relations between the countries into new uncertainty and sent the Mexican peso and global equity markets lower.

Mr Trump announced on Thursday night that goods coming from Mexico would be subject to a 5 per cent levy beginning on June 10, and would be removed only if the migration “crisis” was “alleviated through effective actions taken by Mexico, to be determined in our sole discretion and judgment”. Mr Trump said the tariffs would be increased to 10 per cent in July, 15 per cent in August, 20 per cent in September and 25 per cent in October if the steps were not taken. “We have confidence that Mexico can and will act swiftly to help the United States stop this long-term, dangerous and deeply unfair problem,” he said on Twitter. Mr López Obrador’s comments on Friday morning echoed a letter sent to Mr Trump on Thursday night calling for “prudence and responsibility” in the relationship, as he promised to dispatch the country’s foreign minister to Washington on Friday for talks to “reach an agreement that benefits both countries”.

But the Mexican president also criticised Mr Trump’s move, saying that “social problems cannot be resolved with taxes or coercive measures” and attacking the US president for “turning the land of fraternity for migrants into a ghetto, overnight”. The move saw the Mexican peso on course for its biggest decline in seven months, dropping 3.3 per cent against the dollar on Friday in early trading, while government bonds resumed their rally and global markets slid. Carmakers were especially hard hit, because Mexico is a major hub of auto production.

Shares of Japanese and European carmakers declined, and major US automakers were falling in pre-market trading. Mr Trump said in a tweet on Friday that if automakers were unhappy with the rising cost of tariffs, they could move production. “In order not to pay Tariffs, if they start rising, companies will leave Mexico, which has taken 30% of our Auto Industry, and come back home to the USA.

Mexico must take back their country from the drug lords and cartels. The Tariff is about stopping drugs as well as illegals!” Trade policy and border security are separate issues. This is a misuse of presidential tariff authority Chuck Grassley, Republican senator from Iowa The threat against Mexico reopens the North American front in Mr Trump’s global trade wars.

The US struck a deal with Mexico and Canada to revamp the 25-year-old Nafta pact last year, known as the United States-Mexico-Canada Agreement. Earlier this month Washington removed its tariffs on steel and aluminium products from both its neighbours in a bid to speed ratification by the legislatures in all three countries.

But the decision to threaten Mexico with escalating tariffs based on its success in containing migration shows how fragile that peace was, and could make it harder for the new trade agreement to be accepted by Mexican lawmakers — although Mr López Obrador said on Friday that he believed ratification of the trade accord would happen soon.

Mr Trump said he was applying the tariffs under emergency powers he invoked earlier this year to grapple with migration, a separate legal channel to the levies he has imposed on other countries including China since taking office. The political backlash to the news was swift, even from his own party. “Trade policy and border security are separate issues. This is a misuse of presidential tariff authority and counter to congressional intent,” said Chuck Grassley, the veteran Iowa Republican senator who chairs the finance committee in the upper chamber. He urged Mr Trump to “consider alternatives”, such as a fee on remittances.

The threat of higher tariffs comes as Mexico has been benefiting from the US-China trade war, with American companies looking south to source imported products as opposed to across the Pacific.

Mr Trump has long been frustrated by his inability to fulfil a key campaign promise to build a wall to stop migration from the south, and have Mexico pay for it. Although tariffs on Mexican products would be paid by US importers, this could be Mr Trump’s attempt to follow through on the border wall pledge heading into the 2020 election season.

Just minutes before Mr Trump’s announcement, Jesús Seade, undersecretary for North America at Mexico’s foreign ministry and the lead negotiator for the USMCA, told reporters that the country would have to respond in an “energetic way” if the US went ahead with the tariffs. “I’m not saying we’re going to sit idly by until June 10, but I do trust that it is something that is not destined to [come into] action because it would be very serious,” he said. Mr Trump’s announcement came on the same day that the Mexican Senate started to discuss the USMCA.

The US president had signalled his intention to force a vote on the revamped Nafta deal by sending a “draft statement of administrative action” to Congress. But that move drew an immediate rebuke from Nancy Pelosi, the Democratic Speaker of the House of Representatives, who has been seeking changes to the deal in exchange for its passage and said this was “not a positive step”.

In particular, Democrats have been insisting on stricter measures to enforce labour provisions in the text. “We all agree that we must replace Nafta but without real enforcement mechanisms we would be locking American workers into another bad deal. A new trade agreement without enforcement is not progress for the American worker, just a press release for the president,” Ms Pelosi said in a statement. Recommended Mexico Mexico reaps gains from US-China trade war The ratification of the new Nafta deal has been stalled since the USMCA was signed by the three countries in November.

The removal of steel and aluminium tariffs had long been demanded by the two countries, as well as many lawmakers on Capitol Hill, including top Republicans. After that obstacle was removed, however, the White House and congressional Democrats have remained at odds. Mr Trump has previously threatened to withdraw from the existing Nafta deal if the agreement does not proceed in Congress, but it is unclear whether he is willing to take that risk. Among the most affected sectors by the move to impose tariffs on Mexico is energy.

The US regularly imports more than 700,000 barrels a day of crude oil from Mexico, making it the third-largest supplier after Canada and Saudi Arabia in 2018. A 5 per cent tariff would add approximately $3 a barrel to US crude imports from the country if Mr Trump makes good on his threat to include “all goods” from Mexico under his plan.

That could potentially make Mexican crude oil uncompetitive for US refiners, setting off a scramble for alternative supplies at a time when the oil market has already been strained by Washington’s sanctions on Iran and Venezuela. Mr Trump has made lower oil prices a key pillar of his pitch to voters. Beto O’ Rourke, the Democratic congressman from Texas and a contender for his party’s 2020 presidential nomination, said the move was “just more manufactured chaos and confusion” from Mr Trump.

“Don’t need more tariffs or more reckless policies. We need immigration laws that match our values and we need a president who understands the border,” said Mr O’Rourke.