Trump needs more progress to avert Mexico tariffs, worries

Trump said on Wednesday that he needs to see more progress in talks between the US and Mexico before walking back on his threat to slap tariffs on up to 25% of all Mexican imports.

After a meeting between officials from both sides which ended without an agreement, Trump tweeted: “Immigration discussions at the White House with representatives of Mexico have ended for the day. Progress is being made, but not nearly enough! Border arrests for May are at 133,000 because of Mexico & the Democrats in Congress refusing to budge on immigration reform.

“Further talks with Mexico will resume tomorrow with the understanding that, if no agreement is reached, Tariffs at the 5% level will begin on Monday, with monthly increases as per schedule. The higher the Tariffs go, the higher the number of companies that will move back to the USA!”

Trump administration officials were due to meet for a second day of talks with Mexico's foreign minister in Washington on Thursday.

If they failed to reach an agreement, then on 10 June a 5% duty would be imposed on a range of goods spanning everything from cars, beer and tequila to fruits and vegetables, rising in 5% increments each month thereafter until they reached 25% in October.

Trump wants Mexico to help stop hundreds of thousands of Central American migrants from seeking entry to the US each year.

But some observers believe he is being too ham fisted, with some members of his Republican party having threatened to throw in their lot with the Democrats to form a veto-proof majority against his plan.

There are also concerns that his plans might even put the new US-Mexico-Canada Agreement in jeopardy.

It may also hamper plans by some US manufacturing businesses to relocate to Mexico from China in the wake of the ongoing trade war with Beijing.

Shifting a manufacturing base to another country can be costly and take months, or much longer, to set up.

Trump may believe that American businesses will shift out of Mexico and back into the US, but there were other cheaper destinations still available, including Vietnam and the Philippines, thanks to their relatively low labor costs.

Tariffs on Mexican imports could also hit American farmers especially hard if Mexico retaliated with punitive duties on their products.

Mexico was considered one of the most lucrative markets for American agriculture thanks to its proximity.

Overnight, Fitch downgraded its rating on Mexico's long-term sovereign debt from BBB+ to BBB, citing the worsening finances of state-owned oil company Petróleos Mexicanos, the economy's recent underperformance and US trade threats.

And as of 1158 BST, the US dollar was adding 0.71% against the Mexican peso to 19.7218.