A weak WTO, high U.S. trade deficits, and other countries' lackluster will power on everything from subsidies to immigration makes tariffs the only tool left.
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Trying to make sense of the latest Mexico tariff threat with investors and Mexican policy makers is like emptying out a 1000 piece jigsaw puzzle onto a table. Some think it passes. Some think Mexico tightens its border, giving Trump a reason to use tariffs as political coercion and call it a win. The 5% tariff, to be imposed on June 10, goes to 10% on July 1st, 15% on August 1st, 20% on September 1st, and 25% on October 1st if Mexico does not at least stop Central American migrant caravans from traveling to the U.S. border.
The integrated supply chain between the U.S. and Mexico sees manufacturing components, especially cars and car parts, cross and re-cross the border numerous times a day. The cost of production would rise with each border crossing. President Donald Trump has tried to build a wall as part of immigration reform and has been stopped either by lower courts or Democrats. Tariff threats, now on the table, could upend the new Nafta. The tariff threat does not help Mexico's central bank , or its economy. The Mexican economy contracted 0.2% in the first quarter compared to the previous quarter.Trump's protectionist measures only add to the upside risks posed by the new Obrador government.
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