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Stocks slump after Trump threatens Mexico with tariffs

President Trump announces new Mexican tariffs
  • Shares of Ford Motor and General Motors fell about 2.1% and 4.3%, respectively, after President Donald Trump threatened to impose tariff increases in imports from Mexico unless his border security demands are met.
  • The tariffs would escalate from 5% on June 10 if Mr. Trump's border demands on Mexico are not met to 10% on July 1, 15% on Aug. 1, 20% on Sept. 1 and 25% on Oct. 1.
  • The new tariff threat likely halts Mexico's pending ratification of Mr. Trump's Nafta treaty replacement, the United States-Mexico-Canada Agreement.

Stocks fell sharply on Friday after U.S. President Donald Trump announced more tariffs on imports from Mexico, magnifying concerns about the economic impact of U.S. trade disputes around the world. Automaker shares are among the hardest hit on fears the tariffs would raise costs for vehicles and parts imported from Mexico.

The Dow Jones Industrial Average declined 355 points, or about 1.4%, to 24,815 on Friday. The S&P 500 and tech-heavy Nasdaq lost 1.3% and 1.5%, respectively. Ford Motor's stock price fell about 2.1%, with shares trading at less than $10, while General Motors' stock price shed around 4.3% on fears the tariffs would eat into the automakers' profits and raise vehicle prices for consumers.

Mr. Trump on Thursday announced a new 5% tariff on all Mexican imports aimed at pressuring Mexico to halt the flow of migrants into the U.S. The tariff, to be effective June 10, would increase each month if Trump is not satisfied by Mexico's efforts on border security. Investors were rattled by the surprise announcement, fearing the tariffs could put at risk the United States-Mexico-Canada Agreement, the successor treaty to the North American Free Trade Agreement that hasn't yet been ratified by Mexico. 

Trump threatens new tariffs on Mexico to stop immigration

"Trump's tariff threat also looks set to derail the significant progress made on USMCA," noted analyst Clayton Allen of Height Securities in a research note. "The new tariff threat likely halts any progress on Mexican ratification."

The White House laid out an escalating schedule of tariff increases if Mr. Trump's border demands are not met: 10% on July 1, 15% on Aug. 1, 20% on Sept. 1 and 25% on Oct. 1.

Meanwhile, a China trade war

At the same time, the Trump administration is waging a trade war with China, with U.S. tariffs on $200 billion in Chinese goods rising Friday to 25% from a previous 10%. Those trade concerns are likely to continue through late June, when U.S. and Chinese leaders will have an opportunity to meet at the G-20 summit in Japan.

"Watching this intensely, China has to be wondering whether the U.S. can be trusted to abide by its promises when the administration is rebuffing Mexico having recently forged the USMCA," said Mark Hamrick, Bankrate.com's senior economic analyst, in an emailed statement.

In early May, the U.S. and China concluded their 11th round of trade talks with no agreement. The U.S. then more than doubled duties on $200 billion in Chinese products, and China responded by raising its own tariffs.

Meanwhile, a report released Friday showed that China's factory activity contracted in May amid its trade dispute with the U.S., which has seen higher tariffs on Chinese exports. 

"This comes at a time when CEO's and executives have to be looking at alternatives to the Chinese supply chain. Many thought Mexico would be an alternative, but now that looks in jeopardy," Cliff Hodge, director of investments for Cornerstone Wealth, said in an email. "The risk is that these tariffs, along with those imposed on China pushes an already soft business cycle into a full-blown recession."

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