The direct impact of the US-China trade war has yet to materialise. The global economic slowdown started long before the opening shots were fired in this bitter battle. Central banks are getting ready to cut interest rates, if they haven’t already started, to support growth.
All this to mitigate the fallout from US President Donald Trump’s doctrine of tariffs first, negotiate later. Trade talks with China have broken down; Huawei can’t buy US goods; Trump has threatened tariffs on imported cars from Europe and Japan. Sanctions against Cuba, Iran and Venezuela have yet to yield any benefits. And in his latest move, he has decided Mexico needs to do more to stop immigration. If it doesn’t, there will be tariffs for Mexico as well – a move that’s rattled global markets.
Mexico is the US’s biggest trading partner, exporting $347bn to the US in 2018. A 25 percent tariff would cost about $86bn a year. With many US and international car makers located south of the US border, the auto industry would be the hardest hit. Deutsche Bank estimates vehicle prices could rise on average $1,300 – if tariffs hit 25 percent.
While Trump wants automakers to move back to the US – which is highly unlikely – this could have a devastating impact in Mexico where 839,571 people are employed in the car industry. According to economic consultancy Perryman Group, more than 400,000 US jobs could be lost if the US imposed the 5 percent levy; the net loss to the economy could be $41bn; and the state that’s most dependent on Mexico, Texas, stands to lose more than 100,000 jobs and $7bn in income. If Trump’s trade war with China is anything to go by – the damage to the economy has already been done. The president has signed a $16bn bailout for farmers. Source: Al Jazeera – 9th June 2019