Almost two weeks ago, Donald Trump surprised everyone when he sent a tweet saying that new tariffs on Mexican goods would go into effect. This was big news for three main reasons.
First, in the same week that he announced the tariffs, Mexico was in the process of ratifying the USMCA deal that was negotiated by the Trump administration. Any new tariffs threatened to torpedo the progress that was made.
Second, Mexico is one of the biggest trading partners with the United States. According to the US trade representative office, the trade between the two countries totaled more than $671 billion. The US exported goods worth more than $299 billion while Mexico exported goods worth more than $371 billion.
Third, the reason why the tariffs were announced had nothing to do with trade. Instead, Trump was applying pressure on Mexico to do more to curb illegal immigration, especially from the Central American region.
In response to the news, the Mexican peso fell sharply. This is because most of Mexican goods are exported to the United States. As such, any interruption of that trade would have caused increasing pain for the economy. In fact, after the tariff threat, rating agencies like Moody’s and Fitch announced that they would slash Mexico’s credit rating.
US-Mexico, Deal Done!
Over the weekend, after Donald Trump arrived in the country from his overseas trip, he sent a tweet that changed everything. In the tweet, he said that the US had reached a deal on immigration with Mexico. The deal that was signed said that Mexico should do more to curb illegal immigration from Central America.
I am pleased to inform you that The United States of America has reached a signed agreement with Mexico. The Tariffs scheduled to be implemented by the U.S. on Monday, against Mexico, are hereby indefinitely suspended. Mexico, in turn, has agreed to take strong measures to….
— Donald J. Trump (@realDonaldTrump) 8 giugno 2019
The country also accepted Trump’s request to hold the illegal migrants in the country as they await for their cases, which can take more than two years. This is a major win for Trump, who has for long decried the catch and release policy. This is a policy where migrants who enter the US are taken to an immigration court and then released as they wait for their cases. This can take years and when it happens, very few migrants go to the courts. They end up in the United States as illegal immigrants.
As a result of the new deal between the US and Mexico, the Mexican peso rose sharply against the US dollar as shown below. In addition, stocks in other markets in Asia and Europe rose as well.
The point on the Global Trade War with China
As the Mexican crisis ends, the US is also going through another crisis with China. Over the weekend, the country announced that it would start fresh exports controls. In this, it will start to carefully vet all-important exports it has.
The US has long put these controls, especially in the defense sector. For example, all weapons sold to other countries are vet carefully to determine their impact. China has always accused the US of these controls arguing that they contribute in the widening of the US trade deficit. In fact, if the US allowed exports of some products, it’s large deficit would narrow.
In addition to this, China has also warned companies against following Trump’s directive on trade. As such, companies must weigh whether to follow the US or the Chinese directive on trade.
5 key assets to watch about it
More Useful resources
Trump’s trade war is here to stay – CNN
Forbes – Who Won The Mexican Trade War Of 2019?
