(Bloomberg) -- President Donald Trump said that he would impose a 5% tariff on Mexican goods until that country stops immigrants from entering the U.S. illegally -- brandishing a weapon used against a widening group of countries and perhaps jeopardizing a new North American trade agreement.
The tariff would take effect on June 10, “until such time as illegal migrants coming through Mexico, and into our country, STOP,” Trump said in a Twitter post on Thursday night.
He warned that the levy “would gradually increase until the illegal immigration problem is remedied at which time the tariff will be removed.” The tariffs could rise as high as 25% on Oct. 1, Trump said in a statement released by the White House.
The move, which has major implications for American automakers and other companies with production south of the border and the U.S. economy as a whole, represents Trump’s latest expansion of his trade wars. It comes just days after he removed steel tariffs on Mexico that had caused retaliation against U.S. farm products.
It also marries two of his signature issues -- trade and immigration -- as he ramps up his campaign for re-election in 2020.
Weaponizing Tariffs
Over the past year, Trump has intensified his use of tariffs to try and achieve policy goals on trade, and now immigration.
Trump made curtailing undocumented immigration a centerpiece of his presidency and campaign. He ran in 2016 on promises to build a border wall to keep out migrants and declared a national emergency to tap federal funds for construction, after Congress didn’t provide as much money as the president demanded.
Earlier this month, U.S. Customs and Border Protection said in a tweet that it had apprehended 45 “large groups” of migrants that included more than 7,900 individuals. On Wednesday, the agency said it stopped 1,036 people south of downtown El Paso, Texas -- the largest group of undocumented immigrants it ever encountered, according to a Customs and Border Protection statement.
Jesus Seade, Mexico’s undersecretary of foreign relations for North America, told reporters in Mexico City Thursday at a previously scheduled event that the country won’t retaliate before discussing the matter with the U.S. But the tariff threat, he added, “if turned into reality, would be extremely serious.”
The Mexican peso weakened by as much as 2.4% after Trump’s tweets, while investors fled to the safest assets as concerns over new trade conflicts mount. The Japanese yen gained while the 10-year U.S. Treasury yield dropped to 2.18%.
The move came the same day that Trump presented notice to Congress to pass his renegotiated version of the North American Free Trade Agreement, which has allowed tariff-free trade with Mexico and Canada since it came into effect in the 1990s.
Nafta Implications
The administration said Thursday’s plan to increase tariffs on its southern neighbor was not linked to Trump’s Nafta replacement, the United States-Mexico-Canada Agreement, which the White House is presenting as his No. 1 legislative agenda item.
Acting White House chief of staff Mick Mulvaney said on a call with reporters Thursday night that the potential tariffs aren’t part of a trade dispute but about the immigration problem. He added that if the White House finds enough cooperation from Mexico over the coming weeks, the tariffs will either not take effect or will be lifted swiftly.
“If the Mexican government is able to do what we think they can do, these tariffs will either not go into place or will be removed after they go into place,” Mulvaney said.
Acting Homeland Security Secretary Kevin McAleenan laid out what he called “key opportunities for enhanced partnership with Mexico” that could spare the country from increased duties.
McAleenan listed the need for Mexico to step up its security efforts at its border with Guatemala, a crackdown on transnational criminal organizations and more cooperation and alignment on asylum policy.
Rufus Yerxa, president of the National Foreign Trade Council, a business group representing U.S. companies, said the move was a huge blow to the American economy and casts serious doubt on passage of the new trade deal. “There goes USMCA!” he said. “What trading partner is ever going to trust this administration to honor deals?”
