Life for Mexico becomes tough again, courtesy of Mr Trump.

MEXICO - In Brief 05 Jun 2019 by Mauricio Gonzalez

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In one of his classic harsh remarks, President Trump announced last Thursday he intends to impose an overall import tariff to Mexican products (notwithstanding on the same day he sent the USMCA for discussion and eventual approval of US Congress). The tariff calendar would start with a general rate of 5% next Monday (June 10) and escalating an additional 5% per month until it reaches 25% in October 2019.Trump’s rationale for this economic punishment is non-economic and has to do mainly with electoral topics where he likes to be perceived as tough, like immigration, drugs and border security.In this briefing we analyze the economic effects of the announced tariffs on Mexico’s economy and the margin of maneuver of the Mexican government to reach an agreement and avoid the tariffs.1. Economic effects of import tariffsInternational trade (imports plus exports between Mexico and the US), is close to US $560 billion dollars per year and renders approximately US $50 billion net revenues for the firms involved, which are mainly US companies.Tariffs are trade deterrents, so they could impact the amounts of trade themselves; GDP growth and its components; the exchange rate, inflation and interest rates. In some cases effects could be significant and in some others not.Several analyses published in the last few days, by some banks and Wall Street firms, are abundant in estimates, like the ones below: Mexico’s negative impact on GDP could range between 0.9% and 4.6% if US tariffs remain at 5% or increase to 25%.Impact on US GDP could range between 0.04% and 0.2% depending on rate of retaliation.Labor earnings could diminish in Mexico by 10 basis points for every 5% tariff tranch.I...