Mexico to Retaliate Against Tariff Threats

 

On Monday evening, the 25th, in the Eastern United States, a "bombshell" was dropped on the market, announcing that a 25% tariff would be imposed on all products entering the United States from Mexico and Canada on the first day.

The currency market reacted sharply, with the US dollar index rising by 60 points in a short time to return to 107, the Canadian dollar and the Mexican peso fell by more than 1%, the offshore yuan fell by more than 200 points, losing 7.27 yuan to a four-month low. The trend of the US dollar rising against the currencies of major trading partners continued to Tuesday.

On November 26th, the US dollar index stood above 107, the Canadian dollar fell to a four-year low, and the Mexican peso, which has already depreciated significantly this year, fell by 2.8% at its deepest, touching the lowest level in more than two years since August 2022, and the offshore yuan still fell by more than 100 points, hovering around 7.26 yuan.

Shinbaum read out an open letter on Tuesday, stating that the United States cannot effectively solve the illegal immigration problem by threats and imposing tariffs alone.

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She said that if the United States imposes tariffs on Mexico, Mexico will also be forced to take retaliatory measures, which may lead to increased operational risks for companies in both countries, and exacerbate inflation and unemployment issues. She called for dialogue to achieve understanding, peace, and shared prosperity.

Shinbaum specifically pointed out that large American car manufacturers such as General Motors and Ford happen to be one of the main exporters from Mexico to the United States, and imposing tariffs on such companies is "unacceptable", "what is needed to address the huge challenges of immigration and drugs is cooperation and understanding."

She also retorted that although she is willing to discuss these issues, the drug problem is the United States' own problem, and Mexico has seized tons of illegal drugs. She said that she may not know about Mexico's efforts on immigration issues, the number of illegal immigrants arrested by US border control agencies has dropped by three-quarters from the peak in December last year, "the immigration caravan no longer arrives at the border."

Analysis generally believes that Shinbaum and Ovrador have very different styles, the latter once established an intimate relationship with her, which made him give up the threat of tariffs on Mexico. Shinbaum, however, is obviously less willing to appease. Gabriela Siller, the head of economic analysis at financial group Banco Base, is worried that personality conflicts may escalate the situation.

Another analysis points out that the proposed tariffs will mark the beginning of a trade protectionist plan, and the stock markets of Europe, Japan, and South Korea, which he did not mention, have all fallen, indicating that people are increasingly worried that new trade conflicts will disrupt the global supply chain and weaken corporate profits. Car companies that have built modern factories in Mexico are particularly frustrated, with General Motors falling by more than 8%, Ford by more than 2%, and Stellantis by more than 5%.

Consulting firm Anderson Economic Group said that the prospect of tariffs is a "double alarm for the automotive industry. No assembly plant in Michigan, Ohio, Illinois, and Texas will not be immediately affected by a 25% increase in tariffs on Mexico." The US automotive industry heavily relies on manufacturing and parts from Mexico and Canada, which will lead to a comprehensive increase in car prices and have a significant impact on overall inflation.

However, analysts at Bernstein, a brokerage firm, believe that tariffs "will bring disaster to the US automotive industry," so they doubt whether they will persist, "given the broad negative impact on US industrial production, we expect this is unlikely to happen in practice."

Supporters such as billionaire financier Bill Ackman also believe that the latest tariff threat may just be a negotiation strategy, and also added conditions in social media posts: "unless drugs and all illegal immigrants stop invading the United States."

Moreover, imposing comprehensive tariffs would violate the free trade agreements between the United States, Canada, and Mexico for decades. These three North American countries exchange goods worth more than 1.5 trillion US dollars every year, and last year Canada supplied about 60% of US crude oil imports. The leaders of the two countries have repeatedly emphasized that tariffs will not only harm Canada and Mexico but also harm American businesses and consumers.

Other industries have also issued negative warnings. The American Petroleum Institute (API) said on Tuesday that the free flow of energy products between the United States, Mexico, and Canada is crucial for North American energy security and US customers.