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Tariffs Against Mexico Would Hit Many Goods That Previously Avoided Penalties (#GotBitcoin?)

Products like autos, crude oil and vegetables are rarely imported from China. Tariffs Against Mexico Would Hit Many Goods That Previously Avoided Penalties (#GotBitcoin?)

President Trump’s proposed tariffs on all imports from Mexico would hit sectors that have had little exposure to the administration’s aggressive trade initiatives, including importers of autos, crude oil and fruits and vegetables.

The Trump administration said Thursday that it would impose 5% tariffs on all Mexican imports—nearly $360 billion a year of goods—starting June 10 unless Mexico stems the flow of undocumented migrants to the U.S.

The tariffs would escalate by 5 percentage points each month, reaching 25% by October, the administration said, unless it is satisfied that Mexico is taking actions to reduce the number of migrants arriving at the U.S. border.

Because trade with Mexico, the second largest source of U.S. imports, looks so different from trade with China, the largest source, major new industries would now be pulled into the trade fray. The duties would hit $34 billion of passenger cars, $33 billion of trucks, $14 billion of crude oil and $14 billion of fruits and vegetables—all items that the U.S. doesn’t import at substantial volumes from China.

If carried through to completion, it would be the single largest tariff imposition of Mr. Trump’s administration, larger than duties on washing machines, or solar panels, or steel, or aluminum, or any of the tranches of tariffs against China. To date, the administration has imposed 25% tariffs on roughly $250 billion of Chinese imports, although there, too, it has threatened to add roughly $300 billion of goods to its tariff lists.

Mr. Trump’s action impacts the economy in three ways: via direct tariff collections, via the indirect effects on stock markets and business confidence and investment, and via its potential to scuttle the trade deal signed last year, but not yet ratified, between Mexico, Canada and the U.S.

As is the case with Mr. Trump’s previous round of tariffs, the direct effect at first is small. A 5% tariff on all Mexican imports last year would have brought in about $17.3 billion from U.S. importers, a rounding error in a nearly $21 trillion economy.

If the tariffs actually rise to 25%, the economic impact starts to become more substantial. Tariffs of that scale against all Mexican goods would reduce the U.S. growth rate by 0.7 percentage point in 2020, according to Gregory Daco, chief U.S. economist of Oxford Economics, by raising costs on businesses and consumers and disrupting supply chains. Because U.S. exports are so important to Mexico, it could potentially push that country into recession, he said.

But in addition to the direct tax revenue collected from U.S. importers, the tariffs also rattle financial markets—the Dow Jones Industrial Average was down sharply Friday, with shares of auto makers and their suppliers among the biggest losers.

And as trade tensions linger, business and market confidence is dented, companies increasingly pull back on making big investment decisions, global trade flows fall, and manufacturing slows.

“This indirect effect is hard to judge,” said Roberto Perli, a partner at Cornerstone Macro LLC, “but it would be naive to think there won’t be an effect and that only Mexico has something to lose from all this.”


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