The U.S. is set to impose a 5% tariff on all Mexican imports from June 10, Trump first announced in a Twitter post Thursday night. The move came as a shock as the White House just took a formal step to kick-start approval of the United States-Mexico-Canada Agreement.
Trump's 180-degree turn on one of the largest U.S. trading partners is sending a ominous message to the international community that he can't be trusted, Wall Street policy analysts said, adding that China, already skeptical of Trump's reliability, is now less likely to sign a trade deal with him.
"We view this action as further deteriorating the U.S.-China trade fight. Chinese officials have stated their concern about the reliability of President Trump as a trading partner. These tariffs were announced the same day as significant advancement of the USMCA. If China does not believe a deal will stick, why negotiate?" said Ed Mills, public policy analyst at Raymond James, in a note.
Chinese leader Xi Jinping and Trump are set to meet at the G-20 summit in Japan next month, but the Mexican tariffs put into further doubt that a "substantive" meeting is possible, Mills added.
"Trump's readiness to hit a trading partner with new tariff threats soon after striking a trade deal will make China still more cautious about signing up to a deal that Trump then reneges upon, humiliating its leadership," Krishna Guha, policy strategy analyst at Evercore, said in a note. "Beijing will remain open to talking, but this cannot help prospects for an early breakthrough at G20."
U.S. stocks plunged on the new tariff threat and Chinese equities were hit overnight as well.
"How can you trust Trump to honor a deal?" Chris Krueger, Washington strategist at Cowen said in a note. "Mexico submitted USMCA this week for ratification...Trump's signature trade achievement was moving downfield...and he just threatened Mexico ... with unilateral tariffs on ALL Mexican goods exports to the U.S."
The U.S. and China have made tit-for-tat trade threats after negotiations fell through earlier this month. China reportedly stopped purchases of U.S. soybeans and threatened to cut off its rare earth supply to the U.S., while the U.S. blacklisted Chinese telecom giant Huawei, halting its ability to purchase American chips.
China said Friday that it will establish a list of unreliable entities of foreign companies and people that "seriously damage" the interests of domestic firms.
The heightened trade tensions rattled the stock market this month, with all major indexes posting their first negative month of 2019. The has fallen more than 6% in May, while the Dow Jones Industrial Average has lost more than 1,200 points.