New Mexican tariffs and US companies are in the crossfire

Washington: The surprise announcement by President Donald Trump of an escalating tariff regime against Mexico sent ripples through almost every economic sector in the US, hammering American companies that sell automobiles or run railroads, grow vegetables or build power infrastructure.

Trump tweeted late Thursday that he is slapping a 5 per cent tariff on all Mexican imports, effective June 10, and will raise those tariffs to 25 per cent, “until the Illegal Immigration problem is remedied.”

Whether it’s avocados on a taco or a new Chevrolet Blazer SUV in the driveway, if the tariffs go into effect, Americans could feel it.

The companies that produce such goods felt it immediately Friday.

Shares of General Motors Co., which imports more vehicles into the US than any other automaker, slid 4 per cent at the opening bell. European and Asian automakers ship cars across the border to the massive US market as well. Fiat Chrysler and Nissan Motor Co. both tumbled more than 5 per cent

“For GM, we roughly estimate that a 5 per cent tariff could be a several-hundred-million dollar annual earnings hit,” said Itay Michaeli of Citi Investment Research.

That potential damage rippled outward to auto suppliers. American Axle & Manufacturing Inc. slid 4 per cent.

All of the 11 sectors in the S&P 500 were getting hit Friday, save for utilities because there is no or little cross boarder traffic in that sector. Many investors trying to get out of the way off falling shares put money there, or in treasury bonds.

Companies in the consumer staples sector, sellers of food and groceries, were under significant pressure. Cysco Corp., Costco and Kroger, the nation’s biggest grocery chain, all slid.

Chipotle Mexican Grill Inc, which advertises its food as the freshest, slipped 2 per cent.

The companies that transport goods across the country, especially across the border were punished, too.

Kansas City Southern operates a commercial corridor of the Mexican railroad system and owns a track between Mexico City and Laredo, Texas. It gets almost half its revenue from Mexico each year. Its shares are plunged 7 per cent. All major railroads fell, as did every major airline and tanker company.

“This is opening up a trade war in a new direction that had not been on the radar screen for most people, “ said David French, senior vice president of government relations at the National Retail Federation, the nation’s largest retail trade group. “This could be very disruptive and costly.”

The most prominent mindset seemed to be bafflement, with industry groups again warning of price hikes for everyone.

“Threatening tariffs on Mexican imports while simultaneously seeking support in Congress for a trade deal aimed at keeping trade barriers low with Mexico is a confusing and counterproductive strategy,” said Hun Quach, vice president of international trade at The Retail Industry Leaders Association. “Whether the rhetorical target is Mexico or China, the bill is adding up for American consumers who will pay the price for these tariffs.”

Some of those groups sought to intervene, following others like Nike and Adidas earlier this month in the US trade war with China, who warned an additional tariff of 25 per cent will be “catastrophic.”

“We appeal to President Trump to reconsider plans to open a new trade dispute with Mexico,” said David Herring, president of the National Pork Producers Council and a pork producer from Lillington, North Carolina. “American pork producers cannot afford retaliatory tariffs from its largest export market, tariffs which Mexico will surely implement.”

Early Friday, it did not appear that Trump was prepared to back down with just over a week until the tariffs would go into effect on Mexico.

In a tweet one hour after US markets opened and plunged, Trump tied the immigration issue to tariffs.

“In order not to pay Tariffs, if they start rising, companies will leave Mexico, which has taken 30 per cent of our Auto Industry, and come back home to the USA,” Trump tweeted. “Mexico must take back their country from the drug lords and cartels. The Tariff is about stopping drugs as well as illegals!”