Tags: trump | mexico | tariff | us | consumers

Trump Mexico Tariffs Would Be Double Whammy to US Consumers

Trump Mexico Tariffs Would Be Double Whammy to US Consumers
(Melinda Fawver/Dreamstime)

By    |   Friday, 31 May 2019 10:08 AM

President Donald Trump has declared an intention to increase tariffs/taxes on Americans with another tax on all goods partially made in Mexico “until the illegal immigration problem is remedied.” 

The tariffs/taxes are to “start” at 5 percent and potentially rise to 25 percent.

The news came on the same day that the White House urged Congress to pass the NAFTA 2 or the United States–Mexico–Canada Agreement (USMCA) trade deal.

“Irony” is not dead in the United States, it would seem…

In fact these tariffs/taxes, if they are to be applied, would be a double hit to U.S. consumers. Companies, and thus Americans, have been avoiding some of the U.S. tariffs/taxes on goods partially made in China by purchasing these same goods from Mexico. Mexico had therefore been picking that market share from China on several products listed in the September 2018 Office of the United States Trade Representative (USTR) trade tariffs list.   

So, putting tariffs or taxes on goods, partially made in Mexico, if taxed at 25 percent, would prevent Americans from evading the earlier trade tariffs as mentioned in the 2018 USTR trade tariffs list.

More significantly than the tariffs or taxes themselves is the risk of “uncertainty.”

The U.S. economy and the global economy as well have become dependent upon long and complicated supply chains. If the security of those supply chains is questioned, then companies will need to rethink their business models. Reshaping supply chains is an additional and economically unnecessary cost.

So far, the uncertainty over trade has delayed investment decisions as companies wait for certainty to come back. If those investment decisions were to be cancelled rather than delayed, there would be wider implications.

Cancelling investment and with it creating weaker employment would significantly raise recession risks.

The United States could end up being taxed with tariffs into a recession.

On the news, the Mexican peso has weakened to a five-month low and the cost of insuring exposure to Mexico’s sovereign debt rose to its highest in two months. Global equities are also down as the signal of ongoing trade tariffs or taxes is a signal that equities will continue to be “taxed”.

Besides that, equities all over the world are in a sea of “red”.With this uncertainty about the future, the economic data releases we get today are less important. Most numbers will be telling the story of what “might” have been in a better world several days ago when hopes of stabilization and trade meant a stabilization of economic growth.

Anyway, that said, the just released data about “Personal Income and Outlays” for April shows that personal income increased 0.5 percent month-on-month (m/m) and in April, disposable personal income (DPI) increased 0.4 percent m/m and personal consumption expenditures (PCE) increased 0.3 percent m/m.

The PCE price index, which is important for the Fed, increased 0.3 percent m/m and 1.5 percent year-on-year (y/y). Excluding food and energy, the PCE price index increased 0.2 percent m/m and 1.6 percent y/y.

Yes, these data are rather good…We could say that no Fed rate cut is in the cards for the time being.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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The United States could end up being taxed with tariffs into a recession.
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Friday, 31 May 2019 10:08 AM
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