Last Thursday, president Trump announced new tariffs on Mexico in an effort to pressure the country to halt the flow of migrants from Central America. This escalation of his hard-line border policy could jeopardize the pending USMCA trade deal with Canada and Mexico.
Trump said in a pair of tweets that the US will impose a 5% tariff beginning June 10 on all Mexican imports “until such time as illegal migrants coming through Mexico, and into our country, STOP,” a goal that has never been achieved in recent history.
The tariff will increase by 5% each month until it reaches 25% “unless and until Mexico substantially stops the illegal inflow of aliens coming through its territory,” the president said in an unusual, 1,004-word follow-up statement distributed by the White House.
Trump teased the announcement earlier Thursday, saying he would be making a “big league statement” that would include a “very dramatic” move regarding the US-Mexico border. Trump last month threatened to slap tariffs on Mexico or close the border, but described his threat as a “one-year warning.”
The Trump administration has struggled to stem the tide of illegal migration, as crossings by migrants seeking asylum have approached levels not seen in more than a decade. More than 1,000 migrants were apprehended near a border crossing in El Paso, Texas on Wednesday in the largest single round-up on record.
Trump has long accused the Mexican government of not doing enough to stop people coming from Guatemala, El Salvador and Honduras traveling to the US to seek asylum.
But the move could also rattle financial markets at a precarious time for the president’s trade policy, as the administration is pressuring Congress to approve Trump’s revision of the North American Free Trade Agreement (NAFTA), the quarter-century-old pact with Canada and Mexico.
Thehill.com reported how Dow futures plummeted more than 200 points on Thursday evening after the president announced the new tariffs. White House officials were vague about what conditions Mexico would have to meet in order for the tariffs to be lifted.
Consumers could pay the price
US companies have grown reliant on lower-cost manufacturing south of the border. These proposed tariffs on imports could see costs for US customers and businesses rise.
The impact could be felt from the produce aisle to the car dealership and beyond, especially in California, the nation’s most populous state, with major ports of entry, by land and sea, for Mexican goods.
“Mexico is one of the largest trading partners of California,” said Jerry Nickelsburg, director of the UCLA Anderson Forecast. “Our two economies are highly integrated.”
If tariffs are enacted and expanded beyond 5%, experts say, California in particular would feel the consequences. Were Mexico to retaliate, many Golden State companies would suffer. Latimes.com explains how Mexico is California’s top export destination, accounting for 16.6% of the state’s total merchandise exports.
The price of produce
A 25% tariff on Mexican goods could cost American consumers of Mexican produce such as avocados and mangoes $3 billion annually, warned the Fresh Produce Assn. of the Americas, a trade group that represents US companies involved in import, transportation and sale of Mexico-grown fruits and vegetables.
Mexican growers expect US consumers to bear tariffs
Producers in Mexico believe a 5% -or even 25%- US tariff on avocados will do little to dampen their sales. "I think the bigger risk is for US consumers" having to pay higher prices, said a Mexican avocado grower. The popularity of avocados has won the spreadable fruit the nickname "green gold" in Mexico, the world's top producer.
The US is the top export market for Mexican avocados, according to USDA data, consuming more than 74% of total exports. Japan absorbs at least 6% and Canada another 7% of the Mexican crop.
Avocado buyers Chipotle and Calavo Growers feel the heat
According to markets.businessinsider.com, avocado buyers Chipotle and Calavo Growers are getting slammed as Trump's Mexico tariffs threaten to raise prices.
Chipotle's stock slid 3% on Friday morning amid fears that tariffs on Mexican avocados will drive up its guacamole costs. The company imports many of its avocados from Mexico and uses 450,000 of the fruits daily.
Shares plunged 6% in Calavo Growers, which sold $500 million worth of avocados in 2018, as investors feared higher avocado costs would eat into their profits.
The US imported more than 85% of its Hass avocados from Mexico last year, bringing in nearly 2 billion pounds of the most-popular variety of the soft fruit, according to the Hass Avocado Board. Avocado prices have more than doubled in the past two months to almost 550 pesos ($28) for a 10-kilogram box.