US President Donald Trump is set to slap fresh tariffs on all Mexican imports next month, in a shock move that could threaten a recently-agreed major trade deal between the two sides.
The White House warned late last night that the US will impose tariffs on all goods coming into the country unless Mexico took action to clamp down on unlawful immigration and “reduce or eliminate the number of illegal aliens”.
Trump announced the move on Twitter.
“On June 10th, the United States will impose a 5% Tariff on all goods coming into our Country from Mexico, until such time as illegal migrants coming through Mexico, and into our Country, STOP. The Tariff will gradually increase until the Illegal Immigration problem is remedied,” he said.
The tariffs will rise five per cent each month until 1 October, when they will hit 25 per cent.
In an official White House statement, Trump said: “Tariffs will permanently remain at the 25 percent level unless and until Mexico substantially stops the illegal inflow of aliens coming through its territory.
“For years, Mexico has not treated us fairly—but we are now asserting our rights as a sovereign nation.”
Mexico’s diplomat for the US, Jesus Seade, said the tariffs would prove “disastrous”.
He added: “If this is put in place we must respond vigorously.”
The move is Trump’s latest ploy to target Mexican immigrants.
Previously he has sought funding to build a wall along the Mexican border, but the Democratic opposition has thwarted him.
Trump’s latest attempt to declare a national emergency and divert funds for the wall was blocked by a judge earlier this month.
Mexico is home to dozens of US companies and is a hub of manufacturing, building hundreds of thousands of cars each month.
Mexico is known for agricultural products like avocados and tequila, but the country is also a major manufacturing hub and home to many US companies like IBM and John Deere.
Jasper Lawler, head of research at London Capital Group, said: "Trump is going all out here. The move to start a trade war on another front has shaken sentiment in an already fragile market. The Mexican peso fell two per cent hitting a two-month low of 19.5950 whilst the safe have Japanese yen moved higher versus the dollar."
Trump’s decision follows a last-minute deal last October to revamp the Nafta economic agreement between the US, Canada and Mexico.
The new deal, the United States-Mexico-Canada Agreement (USMCA), was designed to ease trade war fears between the nations.
But Michael Hewson, chief analyst at CMC Markets, warned Trump's latest actions could throw this into disarray.
"This surprise announcement, coming as it does in the wake of the recent new trade agreement USMCA, was completely unexpected and could well upend the whole agreement," he warned.
"It also makes it much more difficult for countries to take the US at its word when it comes to trade negotiations if its President can so easily lob a hand grenade into the path of an already agreed deal..
"This is likely to add further pressure to equity markets this morning, with European markets set to open lower, with the DAX likely to be hardest hit given that the German economy is more highly geared to exports. US markets are also starting to misfire with the result that we look set to see global equities finish lower this week, on top of the losses we saw last week."
Mexico responded to US tariffs on Mexican steel last summer with a wave of levies against American bourbon and pork. The US agreed to lift the tariffs – also imposed on Canadian steel – earlier this month.