CNBC's Jim Cramer does not believe that Wall Street actually thinks President Donald Trump is going to slap a 5% tariff on all of Mexico's imports.
Otherwise, he said Friday, "The market should be down much more."
The Dow Jones Industrial Average was dropping nearly 300 points Friday morning, the last day of a terrible May that saw the Dow sink more than 5.3% as of Thursday's close.
Cramer said the "markets may be wrong" since traders did not think the president would follow through on threats to hike tariff rates to 25% on $200 billion of Chinese goods.
But earlier this month, Trump did.
Trump tweeted Thursday evening that he would impose a 5% tariff on Mexican imports, beginning next month, if Mexico does not take action to "reduce or eliminate the number of illegal aliens" crossing into the U.S.
Last year, Mexico was the second-largest importer of goods into the U.S., according to the Office of the U.S. Trade Representative. The U.S. imported $346.5 billion of Mexican goods last year, and the total accounted for 13.6% of 2018's overall imports.
Trump's new threat came out of left field and it's "all kind of astonishing," Cramer said on "Squawk Alley." But if the markets thought the president were really serious, Cramer said he would expect to see General Motors down 15%. In early trading, shares of the automaker were down 4.5%.
Three of the top U.S. automakers, General Motors, Ford and Fiat Chrysler, each have billions of dollars at stake from having production and suppliers in Mexico.
"Automakers may indeed see large financial impact and uncertainty from the tariffs, as all major OEMs [original equipment manufacturers] import a considerable portion of the vehicles they sell in the U.S. from Mexico," Deutsche Bank warned on Friday. It added GM imports 29% of its total car and truck parts from Mexico.
Cramer said he believed Trump is using tariff threats as a way to move plants away from Mexico and back to the U.S. Working to stop illegal immigration and bringing jobs back is a "double win" for the president who promised immigration reform on the campaign trail, the "Mad Money" host said. The Trump administration thinks the "jobs are going to come back" following the latest threats — "you shouldn't doubt me on this," Cramer said.