Why Trump trade threat tweet for Mexico may have a €1.7bn price tag for Ireland
The suddenness of the move took global markets by surprise.
Exporters are once again wondering aloud what more US president Donald Trump could do to damage the international trade system.
The answer may be extensive if the latest announcement by President Trump to apply an import tariff on all Mexican goods entering the US in 10 days’ time, is implemented.
The announcement of a 5% import tariff, ratcheting up to 25%, on all Mexican imports puts the validity of the whole North American Free Trade Agreement (Nafta) deal between Canada, Mexico, and the US in jeopardy.
It creates a wave of uncertainty across the globe, with many unintended consequences.
Mexican businesses, in particular, had been rubbing their hands in recent months as the trade war with China led to a huge swing by US manufacturers to source more products from Mexico.
Last March, the value of US imports from Mexico overtook that from China for the first time.
Following the spat with Trump administration over immigrants and the building of a wall, Mexico had studiously focused on promoting trade with the US and avoiding antagonising its neighbour.
The extensive Mexican motor industry was also hoping to be the beneficiary of any fallout between the US and Europe, where the big bargaining chip was US imports of cars and parts from the EU.
President Trump’s announcement now puts all the eggs into a blender, with no way of knowing what will come next.
The tariff would take effect on June 10, “until such time as illegal migrants coming through Mexico, and into our country, STOP,” President Trump tweeted late Thursday night.
He warned the levy “would gradually increase until the illegal immigration problem is remedied at which time the tariff will be removed”.
It may all be his latest attempt to get the rest of the wall-building fund.
But the seemingly chaotic workings of the White House are once again on show.
The Mexico tariff move came the same day that President Trump presented notice to Congress to pass his renegotiated version of Nafta, which allows free trade without tariffs with Mexico and Canada.
The unintended consequences could hit the €1.7bn of Irish exports to Mexico, as technology and food supply chains from Ireland often link up with component and finished goods manufacturers in Mexico before reaching final customers in the US.
One thing we can be sure of is that investors who are already wary of China trade meltdown will double down on caution and zip up any new investments until the cloud of uncertainty clears.
....at which time the Tariffs will be removed. Details from the White House to follow.
— Donald J. Trump (@realDonaldTrump) May 30, 2019
A new trade agreement between the EU and Mexico, which includes agricultural goods, concluded last year was very beneficial for Ireland.
The agreement allowed preferential access to the Mexican market for a range of cheeses, with access for others, including cheddar, set within annual quotas.
Access for milk powder was also secured, as was an increase in pork exports to Mexico, with duty-free trade for almost all of these products.
Ireland is a significant exporter of powdered milk and milk derivatives to Mexico, and the removal of tariffs has boosted this trade significantly.
The US targeting of all of Mexico’s €300bn trade is likely to create a rapid slowdown of the Mexican economy, with inevitable consequences for Irish exporters to the market.
We can only hope that the Trump administration finds enough “cooperation” from Mexico over the coming weeks.
