Tariffs on Mexico Over Immigration President Trump said the U.S. would impose escalating tariffs on Mexican imports beginning June 10, in an effort to push Mexico to stem the flow of asylum-seeking families to the border.
Reacting to what he described as “Mexico’s passive cooperation in allowing this mass incursion,” the president said the tariff on America’s third-largest trading partner would begin at 5% and grow steadily, hitting 25% on Oct. 1 unless Mexico takes satisfactory action to halt the migrants. (…)
“People don’t leave their homelands for pleasure but out of necessity,” Mr. López Obrador said. “I don’t lack courage, I’m not a coward or timid, but act out of principles. I believe in politics which, among other things, was invented to avoid confrontation and war.” (…)
The trade action also complicates Mr. Trump’s effort to win congressional ratification of the United States-Mexico-Canada Agreement, a trade deal intended to supersede the North American Free Trade Agreement.
“This is a misuse of presidential tariff authority and counter to congressional intent,” said Sen. Chuck Grassley (R., Iowa), chairman of the Senate Finance Committee. “I support nearly every one of President Trump’s immigration policies, but this is not one of them.” (…)
Business groups voiced alarm at the tariff plans, which they say could harm current and future trade agreements between the two countries and lead to retaliation against U.S. farm products and manufactured goods in the North American supply chain. (…)
“You can’t use trade as a weapon in areas like immigration and not think that you’re completely and totally violating the commitments you just made to another country on trade,” said Rufus Yerxa, president of the National Foreign Trade Council. “This is going to be devastating for the auto sector.” (…)
The U.S. imported $346.5 billion of Mexican goods in 2018, according to the Office of the U.S. Trade Representative. U.S. importers would pay more for Mexican products due to the tariffs, essentially a tax at the border, and likely pass a significant portion of the price hike on to consumers. Meanwhile, Mexican exporters, many linked to U.S. or international investors, in turn would come under pressure to lower prices or face a loss of customers to competing manufacturing economies world-wide. (…)
“If Mexico’s economy falls into recession, it will have fewer resources and ability to stop Central Americans or indeed its own people going north,” said Shannon O’Neil, a senior fellow for Latin America at the Council on Foreign Relations. (…)
(…) “One thing which Donald Trump has said which we know is true now is that he is a tariffs man. He sees tariffs as the solution to all kinds of problems. It’s just throwing the entire card table over, this is just saying we don’t play by anybody’s rules, we can use tariffs when we want.” (…)
It also dampens hopes for any resolution to the U.S.-China conflict, showing just how easily the U.S. administration resorts to tariffs, not just threats of tariffs, when they don’t get what they want.” (…)
“The consequences are therefore much bigger than just what happens to companies operating between the U.S. and Mexico or within NAFTA. This is a global concern.”
(…) businesses will be wondering who will be hit next in their supply chain.” (…)
From Goldman Sachs:
- If tariffs on imports from Mexico as well as tariffs on List 4 imports from China are imposed, then a significant majority of US imports of some products would be subject to additional tariffs, such as computers and equipment (79%), TVs (84%), personal electronics (79%), and others.
- Ultimately, we believe the potential impact of such a tariff would raise the cost of almost all vehicles (to some degree) given direct and indirect impacts to OEMs and suppliers; and without a response from manufacturers or the supply base to shift production footprints, this would likely increase the price of vehicles for the consumer and negatively impact OEM/supplier margins — as we maintain that any increase in costs from border adjustment, tariffs, et cetera, would likely be socialized throughout the automotive value chain.
China Plans ‘Major Retaliative Measures’ on U.S. for Huawei, Global Times Editor Says
Huawei bars employees from meeting US contacts Americans working in R&D at company’s China headquarters told to leave premises
China to Set Up ‘Unreliable Entity’ List After U.S. Huawei Ban
China said it will establish a list of so-called “unreliable” entities it says damage the interests of domestic companies, a sweeping order that could potentially affect thousands of foreign firms as tensions escalate after the U.S. blacklisted Huawei Technologies Co.
China will set up a mechanism listing foreign enterprises, organizations and individuals that don’t obey market rules, violate contracts and block, cut off supply for non-commercial reasons or severely damage the legitimate interests of Chinese companies, Ministry of Commerce spokesman Gao Feng said. Details of the list were not immediately available, though more will be announced “soon.” (…)
Meanwhile, in the real world:
China’s Factories Take a Bigger-Than-Expected Hit From U.S. Trade Battle Activity in Chinese factories slumped in May, as new orders for goods fell in response to uncertainties created by the escalating trade dispute with the U.S.
The official manufacturing purchasing managers index fell to 49.4 in May from 50.1 in April, the National Bureau of Statistics said Friday. (…) Subindexes of the purchasing managers index measuring new export orders—an indicator of external demand for Chinese goods—plunged to 46.5 in May from 49.2 in April, the official data showed. A subindex for new orders fell to 49.8 from 51.4. All are below the 50 mark, signaling a contraction in activity. (…)
A World Bank report released Friday said domestic demand is key if the Chinese economy is to sustain rapid growth. It estimates that the latest increase in U.S. tariffs on $200 billion of Chinese goods, which went into effect on May 10, would decrease China’s gross domestic product by about 0.2%. If the U.S. goes ahead with threats to impose tariffs on the remainder of its imports from China—more than $300 billion in goods—the World Bank report said that could reduce China’s GDP by an additional 0.5%.
From ING:
We believe that a contraction trend in manufacturing activity has formed as the manufacturing PMI has now fallen 3 months in a row and now even enters contraction territory.
Our concern is not just on products affected by the tariffs, which we believe could have a longer impact on both the Chinese and US economy unless trade negotiations resume.
We also worry about technology companies’ production. It is still too soon to evaluate the technology war’s impact on domestic manufacturing activity. The technology war is brewing even faster in May 2019, and could continue for the rest of the year. We expect the technology war to put pressure on manufacturing activity for the whole of 2019.
U.S. Personal Income and Outlays, April 2019
Personal income increased $92.8 billion (0.5 percent) in April according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $69.3 billion (0.4 percent) and personal consumption expenditures (PCE) increased $40.8 billion (0.3 percent). Real DPI increased 0.1 percent in April and Real PCE decreased less than 0.1 percent. The PCE price index increased 0.3 percent. Excluding food and energy, the PCE price index increased 0.2 percent.
Real Disposable Income is essentially flat YtD. Real expenditures are up 3.6% annualized YtD but only 1.4% including the important month of December. The only positive way to read real PCE is to look at Dec-Feb down 0.3% and hope there is a true change in momentum with Mar-Apr being up 0.9%.
But real income is flat, in spite of very quiet inflation and strong labor income. From these stats, labor compensation is rising 4.2% annualized YtD, up from 2.1% during the previous 4 months.
U.S., China firms scramble as new tariffs hurt business
How tariff hikes are squeezing the U.S. furniture business
Fed Would Be Open To Cutting Rates if Outlook Darkens Central bank’s vice chairman, Richard Clarida, says any persistent inflation shortfall would also prompt policy reassessment
(…) “And if we saw a downside risk to the outlook, then that would be a factor that could call for a more accommodative policy.” (…)
“We think some of that [inflation], a lot of that may be transitory, but the reality is it has been softer,” he said. (…)
Fed officials would reassess that stance “if the incoming data were to show a persistent shortfall in inflation below our 2% objective, or were it to indicate that global economic and financial developments present a material downside risk to our baseline outlook,” he said. (…)
While the U.S. economy isn’t as exposed as others to shifts in global demand, “when there is a slowdown in the rest of the world, it does show up in our data,” Mr. Clarida said. (…)
The FT notes that
Mr Clarida’s willingness to discuss the possibility of rate reductions marks a change of tone from the Fed’s recent communications, where the central bank has emphasised its “patient” stance. Minutes to the Fed’s most recent rate-setting meeting did not record an explicit discussion about the possibility of lowering rates.
From the above PCE stats, core inflation did accelerate from zero in Jan-Feb, to +0.1% in March and to +0.2% in April. From the FOMC’s viewpoint, the trend is your friend. Nonetheless, last 4 months: +0.9% annualized.
INITIAL CLAIMS STILL QUIET:
Mortgage Rates Fall Below 4%, Lifting Hopes for Housing Rebound
Uber Cites Tight Competition After Posting $1 Billion Loss Uber executives sought to reassure investors about its growth as an onslaught of competition from ride-hailing and delivery rivals led to a $1 billion loss in the first quarter.
Uber’s loss from operations was $1.03 billion, wider than the $478 million reported a year earlier, as its sales and marketing costs jumped 54%, driven by increased consumer promotions as well as by advertising and marketing head count.
Simultaneously, Uber’s revenue growth continued to shrink. Its revenue from ride-hailing and delivery—minus some incentive payments to drivers and other costs—was $2.62 billion, up 10% from a year ago. By contrast, in the year-earlier quarter, this core revenue on an adjusted basis grew by about 80%. (…)
Since it began operations in 2010, Uber has grown to the point where it now collects over $45 billion in gross passenger revenue, and it has seized a major share of the urban car service market. But the widespread belief that it is a highly innovative and successful company has no basis in economic reality.
An examination of Uber’s economics suggests that it has no hope of ever earning sustainable urban car service profits in competitive markets. Its costs are simply much higher than the market is willing to pay, as its nine years of massive losses indicate. Uber not only lacks powerful competitive advantages, but it is actually less efficient than the competitors it has been driving out of business.
Uber’s investors, however, never expected that their returns would come from superior efficiency in competitive markets. Uber pursued a “growth at all costs” strategy financed by a staggering $20 billion in investor funding. This funding subsidized fares and service levels that could not be matched by incumbents who had to cover costs out of actual passenger fares. Uber’s massive subsidies were explicitly anticompetitive—and are ultimately unsustainable—but they made the company enormously popular with passengers who enjoyed not having to pay the full cost of their service. (…)