Japanese carmakers could take hit as Trump vows tariffs on Mexico over illegal immigration

Reuters Kyodo, AP

Japanese Economy Minister Toshimitsu Motegi said on Friday that an escalation of U.S. tariffs on Mexico and China is an undesirable development for the global economy, in response to questions about U.S. President Donald Trump’s decision to rapidly increase tariffs on Mexican imports unless illegal immigration ends.

Motegi, speaking at a seminar in Tokyo, said it would be beneficial for all parties to reach a rules-based resolution through negotiations.

Incensed by a surge of migrants across the country’s southern border, U.S. President Donald Trump — in a move that could affect Japanese companies operating in Mexico — vowed Thursday to impose a tariff on all goods coming from Mexico starting at 5 percent and ratcheting it up higher if the influx of people entering illegally does not cease.

The U.S. president’s decision, abruptly announced in a tweet and subsequent statement, was a direct challenge to Mexican President Andres Manuel Lopez Obrador and appeared to take the Mexican government by surprise.

It raised the risk of deteriorating economic relations between the two neighbors heavily dependent on the cross-border flow of goods. It also opened up a new front on trade as the Trump administration struggles to conclude a trade deal with China.

A number of Japanese firms have their production bases in Mexico. Honda Motor Co., for instance, exported around 120,000 vehicles made in Mexico to the United States in 2018, accounting for around 80 percent of the cars it produces in Mexico, which is also home to large assembly plants owned by Toyota Motor Corp., Nissan Motor Co. and Mazda Motor Corp.

Shares in Toyota Motor, Nissan Motor and Honda Motor all closed down on the Tokyo Stock Exchange more than 2.8 percent, while Mazda Motor tumbled 7.1 percent.

According to credit research firm Teikoku Databank, there were over 700 Japanese companies operating in Mexico as of June 2018.

Mitsui Chemicals Inc. President and CEO Tsutomu Tannowa said his company will consider moving its North American production base for vehicle resin parts in Mexico depending on how the situation develops.

“If the illegal migration crisis is alleviated through effective actions taken by Mexico, to be determined in our sole discretion and judgment, the Tariffs will be removed,” Trump promised in the statement.

“We therefore look forward to, and appreciate, the swift and effective actions that we hope Mexico will immediately install,” he said.

Higher tariffs will start at 5 percent on June 10 and increase monthly until reaching 25 percent on Oct. 1, unless Mexico takes immediate action, Trump said.

The tariffs potentially complicate efforts to pass a replacement for the North American Free Trade Agreement, even as the Trump administration on Thursday triggered the process for submitting a bill to Congress that would implement the president’s new trade deal with Canada and Mexico.

The notification sent to House Speaker Nancy Pelosi and other congressional leaders riled Democrats, who have been talking with U.S. trade officials to address various concerns, including how to enforce labor reforms that Mexico is enacting to strengthen unions. The procedural step includes submission of a draft statement of administrative action and final legal text of the agreement as it now stands. That formality must be undertaken at least 30 days before the administration can submit its legislation to implement the proposed United States-Mexico-Canada Agreement (USMCA).

Republicans and business groups are trying to generate momentum for the trade deal at a time when strong tensions between the president and Democrats are threatening prospects for getting much of anything done before next year’s presidential election.

“In my view, the president is really creating a mess for Republicans who want to support both USMCA and border security,” said Daniel Ujczo, an international trade lawyer based in Ohio.

He said many of those lawmakers spent the past year fighting the tariffs that Trump placed on imported steel and aluminum from Canada and Mexico because those tariffs and the retaliatory tariffs they provoked on products such as soybeans and pork hurt many of their constituents. He said the same concerns would apply to the president’s proposed tariff on all goods from Mexico.

United States Trade Representative Robert Lighthizer said the procedural step toward implementing the president’s new trade deal does not begin a countdown for a vote, but it would ensure Congress had sufficient time to consider approving USMCA before the August recess, “if leadership deems that appropriate.”

The tariff announcement also rattled investors, who feared that worsening trade frictions could hurt the global economy. The Mexican peso, U.S. stock index futures and Asian stock markets tumbled on the news, including the shares of Japanese automakers.

“We’re in a good moment building a good relationship (with the United States) and this comes like a cold shower,” said Mexico’s deputy foreign minister for North America, Jesus Seade.

U.S. officials said 80,000 people are being held in custody with an average of 4,500 arriving daily, overwhelming the ability of border patrol officials to handle them.

A source close to Trump said there had been an internal debate inside the White House over whether to go forward with the new policy, with immigration hawks fighting for it and others urging a more diplomatic approach. Trump sided with the hawks.

“The last thing he wants is to look weak,” said the source, who spoke on condition of anonymity.

Mexico’s Seade said it would be disastrous if Trump goes through with his threat to impose the tariffs. Calling Trump’s move “extreme,” Seade said a normal response would be for Mexico to “mirror” the U.S. tariffs but that would lead to a trade war.

Trump said he was acting under the powers granted to him by the International Emergency Economic Powers Act. He campaigned for election in 2016 on a vow to crack down on illegal immigration.

“Mexico’s passive cooperation in allowing this mass incursion constitutes an emergency and extraordinary threat to the national security and economy of the United States,” Trump said in the statement.

“Mexico has very strong immigration laws and could easily halt the illegal flow of migrants, including by returning them to their home countries,” he said.

White House acting chief of staff Mick Mulvaney, asked in a conference call with reporters which products from Mexico could be affected by the tariffs, said: “All of them.”

“This is an urgent problem,” Mulvaney said. “We are interested in seeing the Mexican government act tonight, tomorrow.”