Global shares and the price of oil slumped, as President Donald Trump shocked markets by opening a new front in his world trade wars by setting a tariff demand on Mexico.
Shares had shown signs earlier this week of staging some sort of recovery from last week’s escalation in the US-China trade war but the president’s latest tweeted threat on the $350bn (€314bn) the US imports from Mexico means the relief has been short-lived.
Most exposed were the shares of global carmakers because Mexico is a key link in the global supply and build chain for global cars.
“With imports from Mexico worth $350bn annually, a 25% tariff could raise $90bn in customs duties and increase domestic prices by at least 0.4%, with the motor vehicles and electronics sectors most exposed,” said Andrew Hunter, senior US economist at Capital Economics.
President Trump’s tariffs pose a growing threat to the US economic outlook, he wrote, saying that the US Congress could still thwart the White House’s latest attack on its important southern trading partner but “we initially made similar assumptions in the dispute with China, so we would be wary of dismissing the risks this time around”.
Joshua Mahony, senior market analyst at online broker IG, said President Trump had “doubled down on his market defeating actions by announcing a new bout of tariffs on Mexican goods, sending the Dow into a new four-year low”. Brent crude dropped $1.89 to $64.98 a barrel.
....at which time the Tariffs will be removed. Details from the White House to follow.— Donald J. Trump (@realDonaldTrump) May 30, 2019
European markets were also hit, with the Ftse-100 and the Euro Stoxx 50 shedding around 1%. On the Iseq, Ryanair shares dropped by 4% and CRH fell 1.5%.
From Mazda in Japan to Volkswagen in Germany to GM in the US, carmaker stocks took a hit.
The move could hit a number of global companies, with the auto industry looking particularly vulnerable, along with aerospace suppliers, and electronics firms.
“With autos and autocar parts making up more than a quarter of the $352bn worth of imports from Mexico, it is no surprise we have seen substantial losses for the likes of GM, Fiat Chrysler, and Ford,” Mr Mahony said.
For years carmakers have built vehicles in Mexico, taking advantage of its cheap labor, trade deals and proximity to the United States, the world’s largest auto market after China.
“This being escalated at a time when the China situation is not still resolved shows that Trump views tariffs as a weapon he can use without damage to the US economy. That’s worrying and sends a bad signal for the outlook for global trade overall,” said Jon Harrison, a senior macro strategist at TS Lombard.