Mexico’s president said on Friday that he would respond with “great prudence” to threats by his US counterpart Donald Trump to slap tariffs on Mexican goods, and called on Mexicans to unite to deal with the challenge.
Market analysts warned, meanwhile, that US businesses that do manufacturing in Mexico would bear the brunt of the tariffs, with one saying the bottom line of General Motors would shrink by hundreds of millions of dollars.
Trump has threatened to impose punitive tariffs of 5% across the board on all Mexican imports starting on June 10 if Mexico does not stop the flow of illegal immigration from Central America to the United States.
President Andres Manuel Lopez Obrador said Foreign Minister Marcelo Ebrard would visit Washington in an attempt to persuade the US government that Trump’s measures were in neither country’s interest.
Meanwhile, Mexico plans to proceed with ratification of the new free trade accord with the US and Canada despite the tariff threat.
Lopez Obrador said both Mexicans and Americans are in favour of free trade and Trump’s shock announcement on Thursday would not change things.
He said he believed the US leader would understand in due course that the tariff threat was not the way to resolve the matter and stressed that Mexicans had united behind his government.
“I tell all Mexicans to have faith, we will overcome this attitude of the US government, they will make rectifications because the Mexican people doesn’t deserve to be treated in the way being attempted,” the president said.
In a letter responding to Trump’s announcement on Thursday, Lopez Obrador called Trump’s policy of America First “a fallacy” and accused him of turning the United States into a “ghetto” that stigmatised and mistreated migrants.
He had yet to receive a reply to the letter, Lopez Obrador said.
Trump’s announcement rattled investors who feared that worsening trade friction could hurt the global economy.
The Mexican peso, US stock index futures and Asian stock markets all tumbled, including the shares of Japanese automakers who ship cars from Mexico to the United States.
The surprise announcement is sending ripples through almost every economic sector in the US, pulling at the shares of companies that make cars, operate railway, or sell anything with farm produce.
Trump said the tariffs would start at 5% and would gradually increase by five points at a time — up to 25% — “until the Illegal Immigration problem is remedied”.
So whether it’s avocados on a taco or a new Chevrolet Blazer SUV in the driveway, if the tariffs go into effect, Americans will feel the pain more than anyone else.
Shares of General Motors, which imports more vehicles into the US than any other US automaker, tumbled more than 4% in premarket trading on Friday.
Itay Michaeli of Citi Investment Research said that GM is relatively more exposed than Ford because it has a higher level of production in Mexico for high-margin vehicles such as pickups and crossovers and greater content sourcing from the country.
“For GM, we roughly estimate that a 5% tariff could be a several-hundred-million dollar annual earnings hit,” the analyst wrote.
One option GM does have that some other automakers don’t is that the company should shift production of its pickups and the Equinox from Mexico to Canada temporarily, Michaeli added.
Elsewhere in the auto sector, Ford shares declined 3.7%. Auto parts suppliers with exposure to Mexico are also under pressure.
Kansas City Southern operates a commercial corridor of the Mexican railway system and owns a track between Mexico City and Laredo, Texas. It earns almost half its revenue from Mexico each year. Its shares are down 5.8%. Other railway operators getting squeezed include Union Pacific Corp and CSX Corp.
