Wall Street Slams Trump's Mexico Moves as a ‘Serious Risk’
Wall Street Slams Trump's Mexico Moves as a ‘Serious Risk’
(Bloomberg) -- President Trump’s promise to impose tariffs on goods until Mexico halts a flow of undocumented immigrants is being panned by analysts and economists. Concern about the trade wars with Mexico and China weighed on U.S. stocks on Friday, with the S&P 500 sliding as much as 1.4% to the lowest since early March.
Here’s a sample of the latest commentary:
MUFG, Chris Rupkey
“If you are going to turn the world upside down with these America First trade sanctions against imports from China, car imports from Europe, and now immigration from Mexico, you risk turning the economy upside down,” Rupkey wrote in a note. “Keep your eye trained on stock market valuations as the magnitude of the decline will tell you when investors have had enough and are rushing to the safety of cash in an increasingly dangerous and uncertain world.”
RBC, Lori Calvasina
Calvasina sees “more downside risk in the S&P 500 near-term,” partly because “the market hasn’t really had much of a pullback yet.” RBC doesn’t expect a “trade deal with China will be reached anytime soon,” while “Trump’s Thursday evening tweet regarding new tariffs on Mexico seems likely to add to investor angst.”
Without an earnings “reset” to help equities find a bottom until at least mid-July, “this waiting game, in the context of crowded conditions and expensive valuations in U.S. equities, makes a 10% retracement (peak to trough) more likely.” Calvasina is also worried about the 2020 elections, calling Elizabeth Warren’s better polling “troubling” from a stock market perspective.
Deutsche Bank, Torsten Slok
“This is a serious risk to the outlook,” Slok wrote in a note, adding that “trade with Mexico is basically all about the supply chain, which essentially is all about cars.”
Cowen, Chris Krueger
“In the space of a few hours last night, Trump overturned all we thought we understood about the near term direction of the Administration’s trade strategy,” Krueger said. The president “unveiled a one-two punch that we believe will make USMCA extremely hard to pass in both Mexico and the U.S.”
“When Tariff Man returned on a rainy Sunday (May 4) to announce tariff escalations on China, we detected a consensus that this was merely a negotiating tactic,” Krueger said. “In the 27 days that have followed, no public talks have been held and the tariff escalation for goods in-transit along with China’s escalation on $60 billion in U.S. exports is hours away.” He also noted “that June 4 is the 30th anniversary of the Tiananmen Square massacre with at least one more high-profile hawkish speech by Vice President Pence expected shortly.”
AGF Investments, Greg Valliere
“These tariffs break new ground,” Valliere wrote, because “they’re political, a punishment to Mexico for not stopping the surge of immigrants from Central America.”
He listed five “enormous implications”: Damage to USMCA ratification process; potential that a “slumbering” Congress may awaken; Trump may not be finished with new tariffs, triggering higher prices for products from Bordeaux wine to European cars, which may spur inflation; Trump doesn’t seem to be listening to advisers, appears unconcerned by market and economic damage; Federal Reserve may now be forced to cut rates, but that may not be enough to reverse the damage.
Goldman Sachs, Alec Phillips
Goldman views Trump’s moves as an “attempt to show action on the immigration issue while also pressuring congressional Democrats to pass” the United States-Mexico-Canada Agreement (USMCA). Enacting USMCA before the 2020 election “would no longer be our base case if these tariffs are implemented as proposed.”
The U.S. imported $352 billion in goods from Mexico in 2018, and exported $265 billion; a 5% tariff rate would generate roughly $18 billion in tariff revenue annually, well below the $62 billion that the 25% tariffs already in place on $250 billion in imports from China will raise. The largest categories of imports from Mexico, he said, include autos and auto parts ($93 billion), computers ($27 billion), routers ($10 billion), and other electronics ($17 billion).
Raymond James, Ed Mills
Trump’s Mexico actions point to further deterioration in the U.S.-China trade fight. “Chinese officials have stated their concern about the reliability of President Trump as a trading partner,” he said. “These tariffs were announced the same day as significant advancement of the USMCA. If China does not believe a deal will stick, why negotiate? We think these actions put into further doubt that a substantive Trump-Xi meeting is possible at the G20 next month in Japan.”
Veda, Henrietta Treyz
“This tariff threat may be tamped down but doing so will require extensive efforts by vested interests, lobbyists and senior lawmakers,” Treyz wrote in a note. “Regardless of the outcome this week, investors should expect this threat again in the future,” she added.
Based on Veda’s conversations with senior Republicans on Thursday evening, Treyz put the odds of the tariffs going into effect at at least 40%, with 60% “equally appropriate in our view.”
Treasuries Hold Surge Sparked by Trump’s Mexico Tariffs Threat
To contact the reporter on this story: Felice Maranz in New York at fmaranz@bloomberg.net
To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Steven Fromm, Richard Richtmyer
©2019 Bloomberg L.P.