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President Trump has decided to open another front in his trade war, turning this time to Mexico.
Trump took to twitter On Thursday, a 5% tariff on all goods from Mexico would come into effect on June 10th. It would increase by 5% each month until Mexico eliminates illegal immigration, with tariffs reaching 25% in October. Trump said the tariffs came in response to illegal immigration.
On June 10, the United States will impose a 5% tariff on all goods coming into our country from Mexico, until irregular migrants arrive in Mexico and in our country, STOP. The tariff will increase gradually until the problem of illegal immigration is solved, ..
– Donald J. Trump (@realDonaldTrump) May 30, 2019
Administration officials said they would "judge success" "from day to day, from week to week," offering only subjective criteria, such as the "substantial" reduction in migration flow.
Previously, this announcement could be interpreted as an uncompromising bargaining tactic, but after Trump abruptly announced a tariff increase on China a few weeks ago, the markets are now taking him on parole. Financial markets were shaken Friday as stocks and bonds turned to news. The Dow Jones Industrial Average fell more than 300 points.
The US and Mexican economies are very intertwined and US consumers would feel deep customs duties. Tariffs would also be damaging to the auto industry, whose supply chains are spread throughout North America. The global auto industry is already suffering from weak sales and job losses. GM and Ford saw their prices drop more than 3% early Friday. Related: Oil tanks on the fears of the United States, Mexico's trade war
To further complicate matters, tariffs would significantly reduce the likelihood that the renegotiated NAFTA agreement, known as the USMCA, will be ratified. The three countries approved the treaty last year, but it must be ratified by the three national legislatures.
Rates are particularly painful. Fears of a slowdown in global growth are increasing, with signs of a growing economic downturn. The trade war between the United States and China, which seems to only worsen, slows growth. Morgan Stanley said the US economy was under "recession surveillance".
Crude oil was already heading for the biggest monthly decline in six months. Trump has ensured that the benchmarks of the oil sector end May on a negative note. Friday morning, WTI and Brent were down more than 2%, the WTI rising to the middle of 50 dollars and Brent plunging down to 60 dollars.
According to Argus Media, tariffs would impact an energy flow between Mexico and the United States that would have reached $ 13 billion last year, including 665,000 b / d of crude oil and 53,500 b / d of oil. imports of refined products.
It is unclear how Mexico will react, but could simply adopt retaliatory tariffs, as China has done. Mexico imported $ 265 billion worth of goods in 2018, including $ 34 billion in crude and petroleum products and $ 18 billion worth of plastics, according to Argus.
A new trade war between the United States and Mexico would lead to an oil market already heading in a negative direction. "Oil prices have weakened in the face of growing fears that protectionist trade policies will reduce demand and after a month of consistent speculative net sales," wrote Standard Chartered in a note. "Data has been weak in all areas, ranging from bottom-up data on the oil market to top-down macroeconomic indicators."
The investment bank added: "The latest readings of global oil demand have also been negative. Related: Will China cut off rare earth exports?
We estimate that global demand declined in March, due to weak demand in the OECD countries and a particularly sharp collapse in Europe. "
Although Venezuela and Iran, and possibly Libya, are affected by stock cuts, the trade war could affect the entire global economy. Thus, according to Standard Chartered, the risks of declining demand for oil are greater than the risks of increase due to supply disruptions.
However, at the same time, low prices probably allow OPEC + to expand its production cuts for the rest of the year. They will also put pressure on American shale drillers. "[W]We believe that prices are low enough to both delay and moderate Saudi Arabia's production increase and will also increase the financial pressure on US oil companies to further reduce activity, "concluded Standard Chartered.
By Nick Cunningham from Oilprice.com
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